Feb 2007 Financial News

DBG Releases Nine Months Results

Feb 07, 2007

Results for the Nine Months Ended December 31, 2006
All figures quoted in Jamaica Dollars Unless Otherwise Stated

Dehring, Bunting & Golding (DBG) reported Earnings Per Share (EPS) of $1.75 for the nine months ended December 31, 2006. This was 2.78 per cent less than the corresponding period for 2005. Quarter 3 in particular was down by a bigger margin of 18.52 per cent from 81 cents (Q3-FY’06) to 66 cents (Q3-FY’07). The Company stated that reduced bond trading and commission income outweighed improved foreign exchange trading and net interest income on a comparative year to date basis. With respect to the quarter, it was stated that Q3-FY’06 was a phenomenal quarter for Bond Trading Income when some exceptional gains were realized due to the elimination of its Held to Maturity investment classification. Despite this, Q3-FY’07 was the best quarter this Company has had so far for this year.

It is also interesting to note that while the Company was down for the period under review, there was a tax write-back which cushioned the bottom line by $6.402 million. Without this write-back, the EPS would have been down a further 2 cents to $1.73.

Despite a 9.33 per cent increase in Interest Revenue to $2.551 billion, an 11.72 per cent increase in Interest Expense to $1.950 billion resulted in growth in Net Interest Revenue of 2.24 per cent to $601.247 million for the nine month period. With respect to Quarter 3, Net Interest Revenue was up 4.53 per cent. This slight improvement came in a falling interest rate environment. DBG also stated that it has continued to improve its interest differential business by growing its managed funds portfolio, maintaining the sensitivity of its liabilities to interest rate adjustments and expanding its portfolio of secured loans.

With respect to Other Operating Revenue, Gains on Securities Trading and Fees & Other Income was down 18.81 per cent to $319.907 million and 12.91 per cent to $151.036 million respectively. Foreign Exchange Gains however rose 147.07 per cent to $147.691 million. Quarter 3 contributed the most to Foreign Exchange Gains. The Foreign Exchange Gains were as a result of end of year volatility in the US Dollar, as well as from DBG’s distribution, aggressive pricing and the multiple currency options offered to clients. DBG’s Fee & Commission business though down for the nine month period, was up 28.66 per cent for the Quarter. This was as a result of a rebound in performance of its Unit Trust and Brokerage business as additional liquidity from high profile stock market transactions e.g. the sale of Courts and DBG, flowed into regional markets.

Ultimately, Other Operating Revenue was down 1.37 per cent to $618.634 million for the nine months resulting in a minimal increase of 0.37 per cent for Net Revenue to $1.220 billion. Operating Expenses rose 3.18 per cent to $683.663 million.

Profit Before Tax fell 2.99 per cent to $536.218 million while it was down 17.68 per cent for the Quarter. The Effective Tax Rate stood at 1.11 per cent for FY 2006 while the Company had a tax write-back of $6.402 million for FY 2007 as previously mentioned. Profit After Tax was down minimally 0.73 per cent to $542.620 million while for the Quarter it declined 16.74 per cent to $204.448 million.

Given these results, we are revising our estimated EPS from TT$0.30 to TT$0.26 (JMD2.70). At this revised EPS and the current price of TT$2.55, DBG is trading at a price/earnings ratio of 9.81 times earnings. Given that DBG usually trades between 5 to 7 times earnings, we currently recommend a SELL on this share.

Sreshtha Tewari
WISE Research Team