Introduction
As an analyst it is always a pleasant surprise to receive unexpected financial information more so in Guyana where the provision of the bare minimum is the accepted norm.
A litmus test of governance, the ability to produce timely financial statements represents not only the commitment of the directors to discharge their fiduciary responsibility to shareholders but also the ability of management and staff to put in sound controls and procedures to enable them to do so, particularly for financial institutions where the company has the care of other people’s money.
In Republic Bank (Guyana) Ltd’s (RBL) case, the publication of quarterly figures, (which is neither a requirement of Guyana’s securities legislation or its stock exchange rules) within less than a month must give confidence to the shareholders and depositors that the company is being soundly managed.
The corollary to this is that it only takes a quick glance at the most recent financial statements submitted to the stock exchange (http://www.gasci.com/results/current_financials.htm) to see that there are some companies that are either unwilling or unable to discharge their responsibility to their shareholders. According to GASCI; the most recent financials submitted by PHIs are for 2002 and for CCI 2004 which is getting on for being four years and two years out of date respectively. One wonders what logic the securities regulator (The Guyana Securities Council) is using in allowing shares to be traded on the basis of such stale information, save perhaps there is nothing in the securities legislation that prevents private trades and suspending an issue will just mean trades will take place in private so allowing regulated trading on stale information is the lesser of two evils.
With such wide disparities in disclosure it is interesting to consider what the minimum requirement for reporting in Guyana should be. Trading on our stock exchange is extremely illiquid a good example is RBL itself – two sets of financial statements have now been issued by RBL since its shares last traded! If trading is so infrequent is there any benefit to requiring more frequent financial statements? I would think that pragmatism must take precedence over ideology in this case. Much that I would welcome quarterly statements I think half-yearly reporting is more than sufficient, particularly in an environment where some companies cannot produce annual reports on time.
Republic Bank (Guyana) Ltd’s Performance
The quarterly report for RBL indicates strong growth, with all key indicators showing double digit increases over the equivalent period one year ago. A welcome return to the financial statements (compared with the previous interims) is a more detailed breakdown of revenue, which includes interest income and expense. With these figures the interest income and expense margins can be calculated. Interestingly, RBL’s spread has narrowed: for the quarter the interest earned (annualised) was 6.87% of investments while the interest paid was 2.17% of deposits. The equivalent figures for the quarter one year ago were 7.16% and 2.32% respectively.
Financial Highlights
Earnings growth has been driven by growth in deposits (the additional income earned on the spread from these deposits exceeded the reduction in income due to the narrowing of spread on the remaining deposits) plus a reduction in non-interest expenses. It should be noted that the net increase in loss provision for the quarter was just $1 million, compared with an increase of $95 million for the quarter one year ago. However even taking this into account the underlying profitability still increased substantially from the previous quarter.
Justified PE & Investor’s Diary recommendation
RBL’s payout ratio of 40% has not changed since my analysis of the annual report. Stripping out the impact in the change in loan loss provision a 10% expected earnings growth rate still looks reasonable. Alongside a required rate of return of 15% this justifies a price earnings ratio of 9.0; equivalent to a share price of $34.6.
The best bid on the stock exchange is currently $26.2. I would recommend those who are keen on obtaining the stock increase their bids in the region of $34; a price which would still be expected to offer an attractive return.
This writer has an interest in NBI by virtue of the writer and/or an associate being a shareholder.
Disclaimer: All information contained in this article has been obtained from sources that the writer believes to be accurate and reliable. All opinions and estimates constitute the Author’s judgement as of the date of the article; however neither its accuracy and completeness nor the opinions based thereon are guaranteed. As such, no warranty, express or implied, as to the accuracy, timeliness or completeness of this article is given or made by the writer or this newspaper in any form whatsoever. The writer and/or its associates may, where applicable effect transactions, or have positions in securities or companies mentioned herein. Neither the information nor any opinion expressed, shall be construed to be, or constitute an offer ore a solicitation to buy or sell.
