Nov 2006 Financial News

CCMB Releases Nine Month Results

Nov 02, 2006

All figures quoted in Jamaica Dollars unless otherwise stated

Capital & Credit Merchant Bank Limited (CCMB) reported Earnings Per Share (EPS) of $1.12 for the nine months ended September 30, 2006. This was 30.00 per cent less than 2005’s nine month EPS of $1.60. The third quarter in particular was down 9.68 per cent to 28 cents. However, while there was growth from the second quarter (2006) of 33.33 per cent, Q3-06’s EPS was 48.15 per cent less than Q1-06’s EPS of 54 cents.

During Q3-06, CCMB continued to operate in a declining yield environment with yield on Jamaica dollar assets continuing to re-price downwards while overseas interest rates continued to increase. Within these constraints, the Bank and its subsidiaries continued to pursue the strategy of building Non-Proprietary Income streams coupled with the restructuring of its Balance Sheet. In addition, the Group sought opportunities to expand its Net Interest Income stream with higher yielding assets. As a result of this initiative, one of the most significant areas of growth was its Loan Portfolio. The Group’s Loans (after provision for Loan Losses) actually stood at $3.60 billion, representing an increase of 63.78 per cent from the comparative quarter’s end.

In spite of these initiatives, though Interest Income rose 12.39 per cent to $1,271.159 million Q2-06 on Q2-05, Net Interest Income declined, 23.26 per cent to $200.635 million for the same period as a result of a 23.10 rise in Interest Expense. For the nine month period, Net Interest Income was down 11.23 per cent with respect to the comparative period last year.

The Group tried to counter the decline in Net Interest Income by continuing its focus on Other Revenue Sources. Other Revenue actually increased 32.37 per cent from Q2-05 to Q2-06 to $223.857 million. The biggest contributor to this item was Net Gains on Securities Trading which grew 46.36 per cent to contribute $183.540 million. Also showing positive growth was Commission and Fee Income which grew 21.39 per cent to $24.899 million while Foreign Exchange and Translation rose 54.71 per cent to $12.253 million. Moving negatively was Dividend Income (down 84.81 per cent) and Other Income (down 75.05 per cent).

For the nine month period however, Other Revenue was down 28.74 per cent due to declines in Net Gains on Securities Trading (35.20 per cent), Dividend Income (56.92 per cent) and other Income (48.85 per cent). The notable reduction in Net Gains on Securities Trading filtered from Q2-06. It is also interesting to note that Foreign Exchange Trading & Translation found its way into positive territory of $34.421 million after recording a loss of $0.056 million for the respective nine month period in 2005. The loss at that time stemmed from Q2-05. Overall Net Interest and Other Revenue was down 1.41 per cent with respect to Q3-06/Q3-05 and down 20.91 per cent in relation to the corresponding nine month period for 2005. With respect to Q2-06 however, Q3-06 exhibited positive growth of 19.50 per cent.

The Group’s focus on cost containment bore fruit as Q3-06 saw minimal growth of 0.45 per cent in Non Interest Expenses while the nine month period registered a fall of 9.93 per cent in relation to the corresponding period for 2005. Declining the most for the nine month period was CCMB’s Loan Loss Expense which fell 92.48 per cent to $2.613 million. For the third quarter, there was actually no Loan Loss Expense or Recovery. Other Non-Interest Expenses showing declines for the nine months were Staff Costs (11.99 per cent), Property Expense (4.47 per cent), Depreciation (8.84 per cent), Information Technology Costs (23.36 per cent) and Marketing & Corporate Affairs (2.92 per cent). Non Interest Expenses that showed increases for the nine month period were Bank Charges (13.07 per cent), Professional Fees (23.24 per cent) and Other Operating Expenses (20.17 per cent).

Ultimately, Profit Before Tax was down 27.73 per cent to $812.688 million for the nine month period while for the third quarter there was a decline of 3.10 per cent with respect to the corresponding period last year. The Effective Tax Rate rose from 16.72 per cent for the nine month period in 2005 to 18.92 per cent for the corresponding period in 2006. Profit After Tax declined 29.63 per cent to $658.937 million for the nine month period. No dividend was proposed for the current quarter.

CCMB anticipates that the profitability of the fourth quarter may not have any significant impact on the current profit trend and are forecasting year end earnings of $1.30 (TT$0.13). At this forecasted EPS and the current price of TT$1.10, CCMB is trading at a price/earnings ratio of 8.46 times earnings. Given that this share is currently trading close to its 52 week low of TT$1.04, speculators may find some interest in this Company. However, based on the fact that its fundamental trading range is usually between 7 to 10 times earnings, we recommend a HOLD at the current price.

Sreshtha Tewari
WISE Research Team