Nov 2006 Financial News

NCBJ Releases Audited Year End Results

Nov 14, 2006

All figures quoted in Jamaica Dollars unless otherwise stated

National Commercial Bank (Jamaica) (NCBJ) reported Earnings Per Share (EPS) of $2.23 for the year ended September 30, 2006. This was 22.53 per cent more than last year’s EPS of $1.82. The result was driven by improved Operating Profit as NCBJ continued focus on its core banking business resulted in higher Net Interest Income and Fee & Commission Income.

The reported EPS for Q4-2006 was however down 22.89 per cent to $0.64. The drop in the EPS was partly due to the fact that Q4-2005 saw a Loan Provision Recovery of $609.716 million which would have contributed approximately 25 cents to that Quarter’s EPS.

Total Interest Income for FY 2006 stood at $23.015 billion which was 8.87 per cent more than the corresponding period for 2005. Despite the declining interest rate environment, Interest Income from Securities increased 6.06 per cent contributing 68.08 per cent to Total Interest Income. Interest Income from loans also showed a favourable increase for FY 2006 of 15.40 per cent to $7.345 billion. Interest Expense increased 7.78 per cent to $11.237 billion leading to a 9.94 per cent rise in Net Interest Income of $11.778 million. For the quarter, Net Interest Income was down despite increases in Interest Income due to a 17.92 per cent increase in Interest Expense from $2.564 billion to $3.023 billion.

FY 2006 saw a commendable 29.45 per cent increase in Net Fee & Commission Income to $3.175 billion as Fee Commission Income rose 34.02 per cent to $3.966 billion. Fee Commission Expense increased 56.10 per cent to $791.094 million. Net Trading Income increased 1.27 per cent to $2.356 billion for the year. However, Q4-06 experienced a 118.37 per cent increase in Net Trading Income to $479.223 million compared to Q4-05. Despite this hefty increase, the period that contributed the most to Net Trading Income was Q3. Dividend income fell 26.11 per cent for the year while Other Operating Income grew 92.99 per cent to $565.215 million. The fourth quarter contributed the most to this item.

Ultimately Operating Revenue was up 8.74 per cent to $17.943 billion. Had it not been for the Recovery of the Loan Provision in 2005 that was mentioned above, Operating Revenue would have increased by 12.90 per cent.

Operating Expenses grew 6.06 per cent for FY 2006. This included a provision of $244 million for impairment of the investment in Supreme Ventures Limited (SVL). The SVL shares were acquired in February 2006 by a subsidiary of the Bank under an underwriting commitment, due to the under-subscription of the public offer in January 2006. The results for the comparative prior year period also included an impairment loss on the investment in Dyoll Group Limited of $236.359 million.

Operating Expenses such as Staff Costs increased 5.14 per cent to $5.956 billion while Provision for Credit Losses increased 654.97 per cent to $155.786 million. Depreciation Expense fell 4.02 per cent to $1.028 billion while Other Operating Expenses fell 3.79 per cent to $3.776 billion. The prior period’s total Operating Expenses was also lower by $346.683 million due to the Effect of Change in Valuation Basis of Policy Contracts of its Life Insurance Subsidiary. Hence, Operating Expenses for Q4-2006 was up 33.54 per cent to $2.930 billion compared to Q4-2005.

Operating Profit was ultimately up 13.43 per cent for FY 2006 to $6.813 billion. Q4-2006 to Q4-2005 however was down 30.10 per cent in part impacted by the Loan Loss Provision write back in Q4-05.

Profit Before Tax rose 18.73 per cent to $6.931 billion for FY 2006 while the Effective Tax Rate moved from 23.45 per cent in 2005 to 20.83 per cent in 2006. Net Profit for the year stood 22.78 per cent higher than 2005’s Net Profit of $4.469 billion.

During the past 52 weeks NCBJ has traded as low as TT$1.31 and as high as TT$1.90 which is its current close. We are forecasting EPS for FY 2007 of $2.50 (approximately TT$0.24). At the current price and this forecasted EPS, NCBJ is trading at a price/earnings ratio of 7.92 times. Considering that this share usually trades between 8 to 10 times earnings, we maintain our BUY recommendation.

Sreshtha Tewari
WISE Research Team