Home' Trinidad and Tobago Guardian : August 1st 2013 Contents AUGUST 2013 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
STOCKS | BG15
So far in 2013 we have had one
new listing (Clico Investment
Fund), one foreign mutual fund
IPO (Bourse Brazil Latin Mutu-
al Fund), one regional IPO
(Jamaica Stock Exchange) and
the much anticipated and talked about divest-
ment/IPO for the locally-based state-owned
bank, First Citizens Bank Ltd.
Clico Investment Fund (CIF)
As part of its efforts to bring the CL Financial
Clico troubles to an end, the Government
decided to exchange 11-20 year Clico bonds,
which were issued to former EFPA holders,
for units in a new fund called Clico Investment
Fund. This fund comprised mostly 40 plus
million Republic Bank shares together with
$703 million in government bonds, with a
coupon rate of 4.25 per cent.
Since its listing in January 2013, the CIF
units have mostly traded at levels below the
fund s net asset value, which is currently at
$25.41. It was recently quoted at $22.50.
Presumably, most sellers are aware that they
are "giving away" more than $2 in intrinsic
value. At the same time, most buyers are aware
that they are acquiring units at a significant
discount to their intrinsic value. Such are the
imperfections of the free market!
Bourse Brazil Latin Fund (BBLF)
During its pre-launch phase there was much
optimism that this fund would be able to
acquire shares on the Brazilian stock market
(BOVESPA) with the index at about 55,000
points. Social and economic events, however,
have moved rapidly to engineer a "windfall"
opportunity for this new fund.
Well-directed social activism to help move
the Brazilian government toward a more inclu-
sive and equitably developed society has, in
the short term, depressed the local stock mar-
ket. This decline in share prices has been a
boon to the BBLF, as it can now cherry pick
its investments at a lower price level. Recently,
the BOVESPA was quoted at about 47,000
In addition to a lower entry point in the
stock market, the BBLF was fortunate to be
able to buy Reals, the Brazilian currency, at
better prices. From its end of May level of
Rs$2.10 to US$1, the real was quoted in mid-
July at about Rs$2.24 to US$1. Because of this
devaluation, the US dollars that the fund
started with were worth more in terms of
These fortuitous developments have given
the BBLF a "head start" in a new and vibrant
market. The fund will now have to prove that
it can perform well in both the selection of
its investments and the management of its
transaction and administrative costs on a con-
Jamaica Stock Exchange (JSE)
Instead of owning shares in individual com-
panies, whose performance can vary signifi-
cantly from year-to-year, many investors would
be interested in owning the company which
provides the platform on which shares, bonds
and other financial instruments are traded.
Earlier in July, Jamaican investors were given
the opportunity to invest in that country s
stock exchange. A report from the Jamaican
Gleaner newspaper stated that The Jamaica
Stock Exchange s IPO was expected to raise
J$107.8 million from the sale of a total of 38.25
million shares at J$2.85. There were 3.8 million
shares that were reserved for staff at a price
of J$2.55. The total IPO was oversubscribed by
41 per cent.
Of the total issue, 10.2 million represented
a sale by an existing shareholder, Capital &
Credit Financial Group. The remaining 28.05
million shares were a new issue and those pro-
ceeds were earmarked for debt retirement and
the expansion into new services, in particular,
bond trading and the development of the
Caribbean Exchange Network (CXN).
Perhaps, a similar issue can be done by the
T&T Stock Exchange?
First Citizens was formed from the orches-
trated merger of the former National Com-
mercial Bank, Workers Bank and Trinidad Co-
operative Bank in 1993. At that time all three
institutions faced financial difficulties. Under
the tutelage and sponsorship of the Central
Bank and the Ministry of Finance, FCB has
grown from strength to strength over the last
The demise and acquisition of CMMB in
2009 was a significant landmark that saw a
spurt in the bank s assets from the 2008 figure
of $15.8 billion to a September 2009 level of
During 2009, the government pumped $300
million of additional equity into FCB to help
support its greater liabilities. As at September
2012, total assets stood at $34 billion and, by
the end of its current fiscal year, it is projected
to close at $36.65 billion.
The IPO represents the sale by the parent
company, First Citizens Holdings Limited
(FCHL) of almost 48.5 million shares at $22.00
each. The net proceeds of about $1.05 billion
(before employee discounts) would go to the
FCHL, which is owned by the Central Gov-
Assuming that the issue is successful, the
government, through FCHL, would then own
77.2 per cent of the bank, down from 96.5 per
cent prior to the IPO.
Current half-year results
As at the half year to March 2013, FCB
reported net interest income of $579.2 million;
this was an improvement of $36.1 million or
6.6 per cent over the $543.2 million reported
for the comparative period in March 2012.
More robustly, other income increased by
almost 14 per cent to reach $246.6 million
from last half-year s $216.4 million.
Thus, total net income registered at $825.9
million from last period s 759.5 million; this
was an increase of 8.7 per cent.
As interest margins become more com-
pressed, it is interesting to note that the other
income segment currently comprises almost
30 per cent of the bank s total net income.
For the 2012 fiscal year, this item accounted
for 27.8 per cent of total income of $1.52 bil-
Net loan impairment losses fell to less than
$20 million from the $56.4 million reported
for the 2012 half-year. This represents a decline
of $36.5 million or almost 65 per cent. In con-
trast, other operating expenses rose by 17.1
per cent to $422 million from last period s
The net effect of these changes allowed the
bank to report an operating profit of $383.8
million; this is $41.25 million or 12 per cent
more than the $342.6 million earned for same
period last year.
After including the share of profit from
associates and joint ventures, the pre-tax profit
was $388.7 million; this is 11.5 per cent more
than the $348.7 million reported for the com-
parative period in 2012.
During the 2012 period, taxation consumed
less than $6 million, allowing the bank to
report an after-tax profit of $342.8 million.
Having reconsidered and adjusted it tax poli-
cies, this expense item consumed $82.3 million
in the current half-year period.
Consequently, the after-tax result of $306.5
million was $36.4 million less than the $342.8
million reported for the 2012 period.
Current changes in financial position
Cash and statutory deposit rose by almost
$1 billion to $7.9 billion from the September
year-end balance of $6.9 billion. Almost iden-
tically, loans to customers increased from the
September 2012 figure of $10.3 billion to $11.2
billion as at March 2013.
Customers deposits and other funding
instruments rose by almost $1.8 billion to $26.7
billion from the $24.9 billion reported as at
September 2012 or by 6.9 per cent. Loan assets
now represent 42.1 per cent of customer
deposits and similar instruments. For the 2012
fiscal period, this ratio was 41.4 per cent.
Shareholders equity increased to slightly
more than $6 billion from the September 2012
figure of $5.75 billion.
Most of that change was recorded in the
retained earnings line, which advanced by
$306.5 million; this was the net profit for the
half-year to March 2013. A decline in other
reserves of $14.8k made up the difference.
Projections to September 2013
Some key changes include: cash and statu-
tory deposits at $7.9 billion; loans to customers
at $11.5 billion and customers deposits and
similar instruments at $27.1 billion.
Total assets are projected to close at $36.65
billion, liabilities at $30.54 billion and equity
at $6.11 billion.
On the income side, net interest income is
projected to come in at $1.17 billion while other
income is forecasted at $472 million.
Fees related to capital market activities and
electronic banking combined with greater for-
eign exchange sales are expected to contribute
to a higher level of non-interest income. Thus,
total net income is projected to register at
$1.64 billion or 7.8 per cent greater than the
$1.52 billion recorded for 2012 fiscal period.
While loan impairment provisions registered
at $20 million up to March 2013, a further $18
million has been booked for the last six months
of the year. Even at $38 million projected up
to September 2013, this sum is 43 per cent
lower than the $66.8 million provided for in
Operating expenses are forecasted to close
at $872.3 million or almost 16 per cent more
than the $752.5 million incurred for 2012. The
inclusion of the expenses for the Barbados
subsidiary, which was acquired in August 2012,
together with higher pension costs are two of
the main factors that drive this increase.
Due to the adjustments that were made for
the 2012 fiscal year, taxation for that period
represented 37.5 per cent of pre-tax profit. For
2013, an effective tax rate of 20 per cent is
Consequently, the provision for taxation
falls to $147 million from the 2012 figure of
After factoring in all these variables, the
projected after-tax profit is estimated to be
Given that the bank has outstanding shares
of 251, 353,562, this figure gives it a projected
EPS of $2.34.
On the basis of a 45 per cent pay-out per-
centage, this would yield an estimated dividend
of $1.05. The prospectus states that an interim
dividend would be paid with respect to the
March 2013 half-year results. This could be
$0.35 per share. Thereafter, if these projections
prove accurate, the final dividend of $0.70
would be paid in December or early in 2014.
Yield and short-term price projection
Based on the issue price of $22 and EPS of
$2.34, the P/E multiple is a modest 9.40. Also,
based on a dividend of $1.05, the dividend
yield is a handsome 4.77 per cent. If we project
that the dividend yield would fall to 3 per cent,
then, in the short term, and probably before
Christmas, the share price could increase to
$35. ($1.05 divided by 3 per cent = $35). This
lofty price is based on a combination of fun-
damentals and pent-up demand.
Note: There appears to be some imperfection
with the formula that will be used to allocate
share applications to various groups. Perhaps,
since the NIB already owns 1.1 per cent, it can
be persuaded to relinquish its " right" to buy
the full 10 per cent of the issue; this will allow
a slightly greater number of shares to be allo-
cated to individual investors.
Update on new
IPOs for 2013
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