Nov 2006 Financial News

GHL Releases Nine Month Results

Nov 10, 2006

Guardian Holdings Limited (GHL) reported a Loss Per Share (LPS) of $0.75 for the third quarter driving the LPS for the nine month period ended September 30, 2006 further into negative territory. The total reported LPS for nine month period was $3.42 which was 369.29 per cent less than 2005’s nine month Earnings Per Share (EPS) of $1.27. The bulk of this loss was borne from the first quarter which reported a LPS of $1.92.

The Chairman stated that the continuing poor performance of the regional stock markets coupled with the soft market conditions and significant restructuring costs of the UK General Insurance subsidiaries were the two factors solely responsible for the loss. The fair market value loss for the nine month period totalled $514 million. This contributed approximately $2.50 to the nine month LPS. The Group however views its equity investments as strategic and therefore expects positive contributions from this portfolio in the long term. In addition, the integration of its two UK subsidiaries, Link and Zenith was completed (now GHL Europe), resulting in the displacement of 96 persons, the full cost of which was absorbed into this quarter’s results.

Net Insurance Premium for the nine month period was up 4.45 per cent to $2.519 billion despite a 2.03 per cent decrease in Insurance Premium Revenue. This is because there was an 18.42 per cent drop from $954.505 million to $778.653 million in Insurance Premium ceded to Reinsurers. Similarly, for the third quarter alone, Insurance Premium Revenue was up 2.37 per cent with a 27.07 per cent fall in Insurance Premium ceded to Reinsurers resulting in a 15.61 per cent increase in Net Insurance Premium Revenue. Total Revenue (Q3) however fell 1.97 per cent to $1.008 billion as Other Revenue fell 48.41 per cent to $145.721 million. The Total Revenue for the nine month period was down 17.66 per cent compared to the similar period for 2005 as Other Revenue fell 81.32 per cent to $156.455 million.

Net Insurance Benefits and Claims rose 11.83 per cent to $1.971 billion while Expenses rose 13.92 per cent for the nine month period resulting in an Operating Loss of $563.190 million. The third quarter contributed 17.98 per cent to this Loss.

Share of Profit of Associated Companies fell 46.04 per cent for the nine month period to $14.615 million with the third quarter contributing 54.33 per cent. Though Finance Charges for Q3 decreased from the comparative period last year, Finance Charges for the nine month period increased 10.02 per cent compared to 2005.

Profit Before Tax fell 313.52 per cent to -$653.287 million with the third quarter contributing 20.22 per cent to the loss. The Effective Tax Rate was reduced significantly from 17.65 per cent for the nine month period ended 2005 to 8.00 per cent for the current period.

The Chairman is confident that the integrated UK entity, GHL Europe, is now poised to meet the challenges of the UK markets and will achieve a breakeven position in Q4-2006 especially as there are strong indications of the market strengthening. He expects GHL Europe to return to profitability in 2007.

The Chairman has furthermore stated that its operating companies have all made profits after adjusting for diminution in the value of its investment portfolios. He is also confident that adherence to its long term strategies and its commitment to continuous improvements in operational efficiencies will result in a reduced loss position in the last quarter and a substantially improved performance in 2007.

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 current Net Asset Value Per Share of $14.93. Thus, at the current price of $19.60 its market to book stands at an attractive 1.31 times. Hence, at this low price, GHL is trading at a bargain and would be a good opportunity for investors looking for a long-term investment. Thus, we recommend a LONG TERM BUY.

Sreshtha Tewari
WISE Reseach Team