Pan Jam’s profit dented too

Pan Jamaican investment trust reported net profit of $224 million, down 55 percent on 2012 earnings of $502 million for the quarter ending March.  The results were impacted significantly by Sagicor Life Jamaica Limited (SLJ) participation in the Government of Jamaica National Debt Exchange in February. SLJ recorded a realised loss on the exchange of bonds tendered in the NDX of $1.1 billion. Associated and joint venture companies contributed less profit for the quarter, declining by $136 million compared to the 2012 1st quarter amount of $373 million. The share of SLJ’s earnings, decreased by $175 million (47%) to $194 million.

The earnings per stock come out at $1.05 (2012: $2.36).  The fall in earnings from the associates is temporary and will not affect the company’s operations in a major way going forward. The effect is a reduction in interest income as the bonds swapped carry lower coupon rates than the original ones.

Increased cost | The group incurred an increase in finance costs of $179 million and a decrease of $136 million in the share of results of associated and joint venture companies, this was partly offset by increased investment income of $67 million resulting from foreign exchange gains on our US$ investments. Property income was flat year on year, as a $10 million improvement in rental income was offset by reduced net lease recoveries and property appreciation. Operating expenses increased 13 percent or $28 million, driven principally by a 27% increase in general and administrative costs as a result of staff realignment and increased professional fees.

Sagicor150x150As per the company’s report: “Finance costs increased by $179 million to $195 million for the quarter, resulting from increased debt used to fund the purchase of an additional 8% of SLJ’s shares in July, 2012 and the drawdown of the remainder of the US$17.5 million IFC loan in December, 2012. We have, however, retained a net long position in US$ to ensure that our stockholders’ equity is appropriately protected against devaluation risk. Rentable properties enjoyed occupancy levels exceeding 95% for the 1st quarter, while segment operating profit of $184 million for the quarter was $26 million, 16%, better than last year. Our investment management segment posted operating profit of $28 million for the quarter, more than double last year’s 1st quarter segment operating profit of $12 million.”

Associate & Joint Ventures | “Associated companies consist principally of our 32.8% investment in SLJ. We also hold minority positions in New Castle Co. Limited (owners of the Walkerswood and Busha Browne lines of sauces and seasonings), Mavis Bank Coffee Factory Limited (“Mavis Bank”), Hardware & Lumber Limited (“H&L”), Caribe Hospitality Limited (developers of the planned New Kingston Marriott Courtyard Hotel) and Chukka Caribbean Adventures (“Chukka”) acquired in April 2012.”

PamJamChukkaCove150x150H&L reported net earnings of $9.9 million for the 1st quarter, compared to $3.9 million for the same period last year. Revenue and gross margin both increased compared to last year. The investments in Chukka and Mavis Bank produced solid results.

Total assets amount to $21.7 billion and stockholders’ equity increased to $16.5 billion, equating to a book value per stock unit of $78.

Stock outlook | A dividend of $1.10 per stock unit was paid March 2013.  The company will not pay the usual quarterly dividend in June, having doubled up on the one paid in March.The stock which traded on Wednesday, 22nd May at $54 is considered to be severely undervalued and is a good long term investment.

To read IC Insider’s latest report “Sagicor undervalued despite $B NDX hit” , click here.

Sagicor undervalued despite $B NDX hit

Sagicor Life group got hit with a billion dollar charge — the product of the Government of Jamaica’s debt swap in February. The Group exchanged $60.65 billion of GOJ securities for new securities with lower market values, lower coupon rates and extended tenors. The bond exchange resulted in “one-time” realized capital losses of $1.11 billion and lower interest will be earned on the new bonds going forward. To the end of March, the reduction in interest was $83.25 million. In addition, there was expense of $48.1 million for asset tax, which was introduced in June 2012 as stated by management in a release accompanying the first quarter numbers.

NDX effect | Despite the effects of the NDX debt exchange and increased taxes, Sagicor Group posted a net profit of $620.15 million for Q1 2013. In the first quarter of 2012, a net profit of $1.49 billion was earned. The Q1 2013 basic earnings per stock unit was $0.16 (2012: $0.40) and the annualized return on average Stockholders’ Equity was 8% (2012: 20%). Total Comprehensive Income including, net profit for the period and movements in reserves held in Equity, was $1.06 billion and the amount for 2012 was $2.04 billion. For the 2012 financial year the group reported audited profits due to Sagicor’s shareholders of $5.8 billion or $1.54 per share.

SagicorBuilding280x150The release went on further to state that the group’s insurance business performed relatively well but the banking arm faced challenges. Revenue would have been up about 9% but for the impact of the NDX. Net Premium Income, in aggregate, was 6% more than that for 2012. The Individual lines of business earned premiums up by 10% while Group Insurance and Annuity premiums were up by 3%. There was good new business across all lines in the first quarter contributing to strong growth in the in-force policies.

Investment income, before interest expense and capital gains was higher than in the prior year by 2%, including lower coupons in March on some GOJ bonds. Capital gains, for other than NDX security trades, and fair value adjustments were 28% lower than in 2012. Fees and Other Revenues were ahead of prior year by 59%, mainly influenced by higher current period unrealized foreign exchange gains from devaluation of the Jamaican dollar. The life insurance arm paid out 17 percent more on insurance claims due to higher mortality rate and growth on business.

Sagicor boasts total assets of $180 billion, with equity of $33 billion, making it one of Jamaica’s largest financial institutions. Total revenue for the quarter was $7 billion versus $7.5 billion in 2012 and for 2012 equity was $31.5 billion.

Maturity | The life company has reached or is close to maturity in the local market for insurance while the banking arm will need to fight hard to make any meaningful impact on Sagicor’s profits. Management is clearly seeing this, hence the decision to move into Costa Rica.

Stock outlook | The stock for the group is trading around $8 and is considered undervalued by IC Insider as earnings from ongoing operations should range between $1.60-2.00 based on existing business for this year when the one-off NDX charge is removed. Investors should note that historically the PE ratio of this stock has been much higher than for most in the market, which makes the stock a steal at current prices.

Sagicor Investments get big NDX hit

The debt swap that Sagicor Investments participated in — the GOJ’s National Debt Exchange (NDX)  — was costly for the group, not only did they get a big hit resulting in a one-time trading loss of $423 million, they also suffered reduced interest income amounting to $71 million in the quarter to March and a reduction of gross interest income going forward of approximately $57 million per month.

For the three-month period, net Interest Income was $717 million compared to $752 million in the prior year. Income earning assets was $76.9 billion compared to $77.5 billion in the prior period. Net interest margin contracted to 3.73% versus 3.88% in 2012, largely due to NDX.

Non-interest income before NDX losses, was $249 million compared to $337 million in the prior period. This decline was due largely to reduced trading opportunities in quarter. The par value of JA$ securities exchanged was $31.9 Billion. The par value of US$ securities exchanged was US$77.4 million.

Asset management, credit and service fees, trust services and FX trading and translation gains recorded improved results compared with 2012. Fixed income trading, equity trading and stock brokerage posted lower revenues. Non-interest expense increased by 8% to $494 million compared to $457 million for the prior year. Depreciation and amortisation charges associated with branch relocations and technology improvements, rose by $10 million. The current period was also impacted by asset tax charge of $30 million while there was none in Q1, 2012.

Loan Quality | Non-performing loans and leases amounted $712 million representing 7.7% of the portfolio (BOJ December 2012 industry average is 6.8%) versus $548 Million or 5.7% of the portfolio at December 2012. Subsequent to the end of the quarter there was a reduction of $100 million in the Non-performing loans as revealed by the company in their quarterly financial report.

Balance Sheet & Capital | Total Assets were $88.6 billion, up $0.3 billion since December 2012. Securities portfolios increased by 2% to $72.0 billion while our credit portfolio declined to $8.9 billion, from $9.3 billion at December 2012. Interest bearing liabilities now stand at $75.2 billion, up $0.8 billion compared to $74.4 billion at December 2012.

Stock Outlook | We estimate that the company will earn around $2.50 per share for the year ending December and with a price of $15.57 there is still value in holding the stock for medium to long term growth as well as excellent dividend payment.

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