May 2008 Financial News

GHL - Forecast for FY08

May 01, 2008

Guardian Holdings Limited
Forecast for Fiscal 2008
May 1, 2008


YE07 Results

--- Earnings Per Share ---
For the Year Ended December 31, 2007, Guardian Holdings Limited (GHL) reported a diluted Earnings Per Share (EPS) of $0.59 compared to a diluted Loss Per Share (LPS) of $1.05 in fiscal 2006.

The Chairman has attributed the turnaround in the Group’s performance to a sustained focus on operational efficiency and the implementation of streamlined business processes. He also stated that this recovery was achieved across the Group with all divisions returning profits well ahead of those achieved in 2006.

--- Financial Highlights (YE07 on YE06) ---
• Net Insurance Premium Revenue, up 13.4 per cent or $550.5 million to $4.6 billion
• Fee and Commission Income, up an outstanding 198.7 per cent or $131.9 million from $66.4 million to $198.3 million
• Total Revenue, up 16.3 per cent or $838.6 million to $6.0 billion
• Net Insurance Benefits and Claims, up 19.0 per cent or $558.6 million to $3.5 billion
• Operating Profit (before fair value losses), up a substantial 324.9 per cent or $315.9 million from $97.2 million to $413.1 million
• Fair Value Losses of $128.4 million compared to a Loss of $103.6 million in FY06
• Operating Profit of $284.7 million compared to an Operating Loss of $6.4 million in FY06
• Share of Results of Associated Companies, up a considerable 308.4 per cent or $74.3 million to $98.4 million
• Profit After Taxation of $130.5 million compared to a Loss After Taxation of $216.2 million in FY06

--- Financial Highlights (Q407 on Q406) ---
• Net Insurance Premium Revenue, down 3.6 per cent to $1.5 billion
• Fee and Commission Income increased from $3.2 million to $105.3 million
• Total Revenue, up 2.3 per cent or $45.1 million to $2.0 billion
• Net Insurance Benefits and Claims, up by a small 2.5 per cent to $1.1 billion
• Operating Profit (before fair value losses), up 10.4 per cent or $14.4 million to $153.2 million
• Fair Value Gain of $54.6 million compared to a Gain of $482.4 million in Q406
• Operating Profit, down 66.6 per cent or $413.4 million to $207.8 million
• Share of Results of Associated Companies increased from $9.5 million to $77.7 million
• Profit After Taxation of $210.7 million, down 62.4 per cent from $560.0 million

--- Dividends ---
In light of these results, the Directors decided to pay a final dividend of 25 cents per share, which was paid on April 18, 2008 to shareholders on the Register of Members as at April 10, 2008. This brings the total dividend paid for 2007 to 30 cents per share (2006: 15 cents).

The Annual General Meeting of the Company will take place on May 12, 2008.

--- Outlook ---
For fiscal 2007, the Group has seen significantly improved results over the previous financial year and as stated by the Chairman, the Group should benefit in 2008 from the costly restructuring of the Company’s UK subsidiaries (Link and Zenith) which was completed in early 2007.

--- Recommendation ---
Our analysis in determining a core EPS for the Group was based on the Group’s Q407 results. Consideration was given to the Fair Value Gain After Tax which was deducted as well as the Fee and Commission Income.

Q407 on Q406, Fee and Commission Income was significantly larger and as such the $105 million ($79 million after tax) was extracted and a more conservative estimate of $30 million ($23 million after tax) was used in our calculations. This estimate was based on the previous three quarters in fiscal 2007. Our calculations assumed an effective tax rate of 25 per cent.

Gain on Equity Porftolio
The Group’s investment portfolio at year end stood at $13.3 billion, 12 per cent of which is invested in equity excluding RBTT. Assuming a conservative 10 per cent gain on the equity portfolio (ex-RBTT), this would translate to approximately $120 million after tax.

Interest Savings
The 46 million RBTT shares owned by the Group at $40 per share totals $1.84 billion. Assuming a 10 per cent finance charge and an effective tax rate of 25 per cent, implies interest savings of roughly $46 million after tax.

Other factors to further enhance EPS:
With the amalgamation of RBTT Financial Holdings Limited and the Royal Bank of Canada (RBC) operations in the Caribbean near completion, GHL is expected to report a one-off gain in fiscal 2008. This non-recurring realised gain arising on the disposal of the Group’s investment in RBTT will be appoximately $227 million and will be reported in the second quarter of 2008.

Additionally in early April 2008, GHL disposed of its entire shareholding at full market value, its investment in Grupo Mundial.

Based on this analysis, we are forecasting a core EPS of $3.10 for fiscal 2008. At the forecasted EPS and a multiple of 11 times, this share has an estimated Target Price of $34.10 (based on core operations alone). In addition if we take into account the gains on the disposal of the Group’s RBTT shareholding and the Grupo Mundial disposal, it is possible for GHL to accrue an EPS of between $3.75 to $4.00 for the upcoming fiscal. This could further enhance the return of the stock over the next 12 months. We recommend a BUY on this share.


Nancy Chen
WISE Equity Research Team