Aug 2006 Financial News

Guardian Holdings Releases Half Year Results

Aug 11, 2006

Guardian Holdings Limited (GHL) has reported another significant loss for the Half Year ended June 30, 2006. Loss per share (diluted) stood at $2.67 for the period, down by $3.44 or 446.75% on the corresponding period in 2005. For the three months ended June 30, 2006, the diluted Loss per share was $0.75, thus the bulk of the loss was borne in the first quarter of 2006.

While the Loss after Taxation for the half year period amounted to $548.81 million, 78.35% or $430 million of this figure was a result of Fair Value Losses in the equity investments portfolio. Excluding Fair Value Losses, the Company would have made a Loss after Taxation of approximately $96 million or a diluted loss per share of approximately $0.47.

The Chairman attributes the Loss after Taxation (exclusive of Fair Value Losses) to one-off costs associated with the reengineering of its UK Operations. This process involves the consolidation and rationalization of its two Property and Casualty Businesses: Link Insurance and Zenith Services UK Limited; in addition to the appropriate assets and personnel of its Third Party Administrator and Claims Service Provider (Rubicon Insurance Solution Limited’s Maidstone Operation).

In addition to the bottom line being poor, the top line was also significantly hampered with Total Revenue falling by $553.58 million or 24.92%, to end at $1.67 billion. This significant fall was largely due to Other Revenue, which was down by a significant 98.07% or $544.53 million, to end at $10.73 million. While, Net Insurance Premium Revenue was down by a marginal 0.54% or $9.05 million to $1.66 billion.

The Company’s Net Insurance Benefits and Claims increased by $32.37 million or 2.65% to $1.25 billion, while Expenses were up $103.07 million or 13.35% to $875.25 million. The Operating Loss for the period was $461.91 million, down by $689.01 million or 303.39% when compared to the Operating Profit of $227.11 million in the comparable period of 2005.

Share of Profit of Associated Companies increased marginally by 0.35% to $6.68 million; however this was offset by an increase of $13.83 million or 26.54% in Finance Charges. Loss before Taxation stood at $548.81 million a fall of $700.49 million on the comparable period’s Profit of $151.68 million. The Effective Tax Rate was reduced significantly from 16.50% in the half year ended 2005 to 5.30% in the current period.

The Chairman has given the following synopsis of markets outside of Europe: The Caribbean based Property and Casualty businesses are producing excellent profitability. Also, the Life, Health and Pension businesses continue to enjoy growth in new premium income of 17.2% in Trinidad & Tobago and 9% in Jamaica, over the corresponding half year in 2005. In the Netherland Antilles, companies are on target for premium income in 2006. The Asset Management business has exceeded its profit targets for the first six months of 2006, while Groupo Mundial, the associate company in Central America is performing exceptionally well and GHL will continue to look for new opportunities in this region.

The Board of Directors has decided to pay an Interim Dividend of $0.15 per share, with an Ex-Dividend Date of August 15, 2006 and Payment Date of August 25, 2006.

We do not expect to see any Profits for this Company by year end and it uncertain as to how soon in 2007 we will see some significant improvement in the bottom line. However, GHL is still a fundamentally good company with a strong asset base. Thus at the low price of $18.01, this share is trading at a bargain and would be a good opportunity for investors looking for a long-term investment. Though, it should be noted that at this low price, it is unlikely that it will attract supply in the market. Thus, we do not expect the price of this share to go much lower than $18.00. Our recommendation at this point is Long-Term BUY.


Gia Singh
WISE Research Team