Oct 2006 Financial News

DBG Releases Half Year Results

Oct 31, 2006

All figures quoted in Jamaican Dollars unless otherwise stated

For the Half Year ended September 30, 2006, Dehring Bunting & Golding Limited (DBG) reported Earnings Per Share (EPS) of $1.09, representing an increase of 10.10 per cent or 10 cents on the comparable Half Year EPS in 2005. For the second quarter ended September 30, 2006 the EPS amounted to $0.62, up 26.53 percent or 13 cents on the comparable EPS in 2005. The Chairman stated that this overall performance was a reflection of a rebound in trading profits from the first quarter along with the continued stability of the net interest income business.

Interest Revenue was up by 6.35 per cent to end the period at $1.66 billion, driven by an expansion in the loan portfolio, which has almost doubled to $3.06 million when compared with the balance as at September 30, 2005. The Chairman has stated that the loan pipeline continues to be extremely encouraging and he has also pointed out that the Bank has recently launched a consumer finance initiative- Easy Own- through its wholly owned subsidiary, Asset Management Company Limited. Interest Expense also increased, up 8.12 per cent to end at $1.26 billion. Thus, for the period under review, Net Interest Revenue stood at $396.32 million, up by a marginal 1.09 per cent. This marginal increase was also reflected in the second quarter figures, as Net Interest Revenue increased by 0.08 per cent compared to the second quarter in 2005. The Chairman has pointed out that while the increase was marginal; the Bank was able to sustain this increase in a collapsing interest rate environment, where the Bank of Jamaica cut rates twice in the month of September alone.

Gains on Security Trading were the major contributor to Other Operating Revenue and stood at $199.29 million for the Half Year, showing an increase of 3.72 per cent or $7.15 million on the comparable period in 2005. However, for the three months ended September 30, 2006 this figure amounted to $140.62 million, up by a significant 76.42 per cent on the comparable three months in 2005. The improvement in Bond Trading is due to the recovery in prices on emerging market debt and on GOJ debt in particular. DBG believes that the bond prices will continue to move higher given the improvement in Jamaica’s fiscal position, in addition to the considerable prospects for growth in the Construction, Mining and Tourism sectors.

Foreign Exchange Gains showed the largest percentage increase for the period, moving up 461.06 per cent or $70 million to end at $85.19 million. While the increase is substantial, the figure of $85.19 million shows a return to consistency of earnings derived from this activity, when compared to the prior year’s uneven performance.

Fees and Other Income was the only negative contributor to Other Operating Revenue, falling by 26.78 per cent to $95.24 million. The Chairman has pointed out that this performance reflects the fact that the local and regional equity markets continue to struggle through a period of sustained disinterest. Thus, Other Operating Revenue for the Half Year period amounted to $379.72 million up by 12.54 per cent or $42.32 million on the comparable period in 2005.

Net Revenue for the period stood at $776.04 million up by 6.39 per cent on the comparable Half Year period in 2005. Operating Expenses was also up (4.61 per cent), standing at $442.89 million for the current period compared to $423.35 million in the same period last financial year. Thus, Profit before Taxation amounted to $333.15 million, up by 8.85 per cent or $27.08 million on the comparable period in 2005.

The Effective Tax Rate for the period was a minimal 1.51 per cent while the Company benefited from a Tax Credit of 1.65 per cent in the comparable period in 2005. Thus, Net Profit after Taxation for the Half Year stood at $338.17 million up by 12.33 per cent on the same period in 2005.

On October 20, 2006, the Bank of Nova Scotia and the Bank of Nova Scotia Jamaica Limited (collectively, “BNS”) announced their intention to make an offer to purchase a controlling interest (up to 80% , minimum 75%) in DBG. The Offer was launched on October 23, 2006 with the closing date on November 27, 2006. The Offer is a cash bid and will be priced at JMD21.08 or TT$2.00. The current price of DBG on the local market is TT$1.85 while in Jamaica it is currently trading at JMD20.00.

DBG’s second quarter performance has been exceptional when compared to the same period in both fiscal 2006 and fiscal 2005. Thus, we are revising our forecasted EPS up to TT$0.30. At the current share price of TT$1.85 and the revised forecasted EPS of TT$0.30, these shares are trading at a price to earnings multiple of 6.17 times. DBG usually trades in the range of 5 to 7 times and as such, at the current P/E ratio of 6.17 times we would recommend a HOLD.

It should also be noted that this share is currently trading at the higher end of its usual range because of the current environment around the transaction with BNS. The Directors of DBG have recommended that its shareholders accept BNS’s Offer.


Gia Singh
WISE Research Team

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