May 2007 Financial News

RBTT Releases Year End Results

May 21, 2007

WISE is a subsidiary of RBTT Financial Holdings Limited

Results for the Year Ended March 31, 2007

Earnings Per Share
For the Year Ended March 31, 2007, RBTT Financial Holdings Limited (RBTT) reported Earnings Per Share (EPS) of $2.76. This was up on the last financial year by 4.55 per cent or $0.12. Also, it is important to note that the results for FY06 were restated to correct the recognition of deferred taxation. This had the effect of reducing the diluted EPS of fiscal 2006 from $2.68 to $2.64. Q407 on Q406, the growth was a similar 4.00 per cent or $0.03 from an EPS of $0.75 to $0.78. However, when compared to Q307, the last quarter (Q407) was up by an outstanding 21.88 per cent or $0.14 from an EPS of $0.64.

Financials
Net Interest Income ended the year at $1.85 billion, up by a small margin of 3.27 per cent on fiscal 2006. For the last quarter, this figure stood at $487.88 million and was up on the comparable period in 2006 by a larger margin of 6.20 per cent or $28.48 million. Conversely, Other Income fell by 2.31 per cent or $28.53 million to end FY07 at $1.21 billion. This fall was mainly due to a gain of $36.61 million on the sale of shares in FY06 which was not repeated in FY07 coupled with a large decline in Dividend Income. The drop in Dividend Income was due to the fact that Guardian Holdings Limited (GHL), in which RBTT holds a 14.9 per cent stake, did not pay a final dividend for FY06 compared to 40 cents in the previous financial year. Thus, Dividend Income fell by 84.4 per cent from $26.24 million to $4.09 million. As a result, Total Net Income rose by a marginal 0.69 per cent or $21.03 million to end the year end period at $3.06 billion.

Impairment Charges saw a significant decrease of 80.98 per cent or $127.38 million, from $157.30 million at the end of FY06 to $29.92 million for FY07. This considerable decrease was also seen in the last quarter (Q407), where the figure was $9.86 million compared to $42.21 million for Q406. Year on Year, Operating Expenses saw an increase of 4.67 per cent or $82.24 million to close the period under review at $1.84 billion. Thus, Operating Profit amounted to $1.18 billion, an increase of 5.92 per cent or $66.17 million over the comparable period last year. Additionally, year on year, the Operating Efficiency Ratio has moved in the wrong direction from 58.0 per cent to 60.3 per cent.

Share of Profits of Associated Companies and Joint Ventures Before Tax was $16.89 million, down on the previous financial year by 7.57 per cent or $1.38 million. Q407 on Q406, this figure was down by a considerable 53.04 per cent or $6.70 million from $12.63 million to $5.93 million.
Consequently, Profit Before Taxation for the twelve month period stood at $1.20 billion, up by 5.70 per cent or $64.78 million.

The Effective Tax Rate for the fiscal year ended March 31, 2007 was 20.85 per cent compared to a Tax Rate of 20.58 per cent in the fiscal year ended March 31, 2006. Thus, Profit After Taxation was $950.89 million for FY07 compared to $902.68 million for FY06- an increase of 5.34 per cent or $48.21 million.

Segmental & Geographic Performance
The Retail and Commercial Banking Units performed considerably well, increasing their profit contribution by 26 per cent, while the Investment Banking activities showed moderately better earnings this year, up 2 per cent. Although the Merchant Bank Business underperformed in the first two quarters of the year, it closed fiscal 2007 very strong after booking transactions. The pipeline remains healthy for this segment and it is expected to have a stellar year going forward. However, earnings from the Trust and Asset Management Units fell off by a significant 30 per cent compared with the prior year. This was primarily the result of the decline in stock market activity in Trinidad and Tobago which negatively impacted fee income.

Geographically, Jamaica was the worst performing with a negative Profit Before Tax Growth of 15.8 per cent, year on year. This was a direct result of an increase in Operating Expenses from increased staff costs in an effort to bring salaries in line with the market. Barbados, Eastern Caribbean & Suriname on the other hand performed exceptionally well, up by 266.3 per cent on the prior year. The Dutch Caribbean saw a 12.5 per cent growth rate, while Trinidad and Tobago was up by a marginal 2.5 per cent on account of the fact that the Trust and Asset Management segment’s core business is in Trinidad and Tobago.

Assets & Liabilities
On the Balance Sheet side, Assets increased by 15.60 per cent or $6.36 billion to $47.09 billion, of which Loans and Advances was the largest contributor, up 13.81 per cent to $22.17 billion. This asset class had a Compound Annual Growth Rate of 19.19 per cent over the fiscal period 2003 to 2007. Additionally, the Bank’s Non-Productive Loans to Total Loans improved year on year, moving from 3.6 per cent (FY06) to 2.9 per cent (FY07). Liabilities also saw an increase, up 16.06 per cent to $42.55 billion. Customer Deposits and Other Interest Bearing Liabilities stood at $39.67 billion, up 19.94 per cent on the same period last year.

Dividends
The Board of Directors has declared a final dividend of 65 cents per share, payable on June 18, 2007 to shareholders on record as at June 4, 2007. This will bring the full year dividend to $1.25 per share ($1.20-FY06).

Recommendation
The shares of RBTT last closed at a price of $29.50 on the local stock market. We are forecasting an EPS of $3.00 for fiscal 2008. At this forecast and the current price, these shares are trading at a multiple of 9.83 times, which is attractive given that this share usually trades between 10 to 13 times. Additionally, using a multiple of 12 times and the forecasted EPS of $3.00, this share has an expected return of approximately 22 per cent on the current price or a target price of $36.00. Thus, based on this analysis we continue to recommend a BUY on this share.

Gia Singh
WISE Equity Research Team