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EFG Hermes net profits up 49% y-o-y to record EGP 304m in Q2 19

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EFG Hermes the leading financial services corporation in Frontier Emerging Markets (FEM) reported net profit of EGP 304m in the Q2 of 2019 up 49% year-over-year (Y-o-Y) the company revealed recently.

The company achieved revenues of EGP 1.1bn, reflecting a 13% y-o-y increase during the same period.

For the H1 of 2019, group revenues reached EGP 2.3bn to deliver a net profit after tax and minority interest of EGP 676m, representing a 51% increase compared to the same period last year.

Strong top-line growth came on the back of a robust performance by the Group’s NBFI platform, which reported a 73% y-o-y increase in revenues to EGP 322m in 2Q19 and contributed 31% to group revenues for the quarter.

The platform’s results were underpinned by Tanmeyah’s impressive 83% year over year revenue growth to EGP 275m in 2Q19.

The Group CEO of EFG Hermes Holding’s Karim Awad commented that, “Halfway into the year, EFG Hermes continues to report solid results with our NBFI platform recording stellar growth and increasing its contribution to our top-line to 31% for the quarter up from 20% a year ago.”

“Our microfinance solutions provider, Tanmeyah, once again posted outstanding results as it continues to grow its active borrowers and loans issued. The rapid growth at our NBFI platform bears testament to the strong demand for financing solutions in Egypt and the ample opportunities present in increasing access to finance and helping fuel broad-based financial inclusion and economic growth.”

More so, Tanmeyah’s strong growth helped drive a 15% y-o-y increase in the Group’s reported Fees and Commissions revenue to EGP 784m in 2Q19, which continued to make up the lion share of the Group’s top-line at 75% for the quarter.

EFG Hermes’ sell-side businesses recorded a 4% y-o-y expansion in revenues to EGP 364m in the second quarter of the year. Higher revenues reported by the Brokerage business, which rose 10% y-o-y to EGP 297m primarily on stronger commissions generated in the MENA markets particularly KSA, Kuwait, and the UAE, more than offset a 17% Y-o-Y contraction in Investment Banking revenues.

“The Brokerage division’s ability to deliver strong top-line growth for the quarter despite difficult market conditions reflects the success of our geographical diversification strategy which, in recent years, has seen us successfully penetrate key MENA and Frontier markets,” Awad said.

“During the quarter we saw Frontier markets, KSA and Kuwait take the lead in terms of contributions to total commissions, a testament to our team’s strong revenue generation capabilities across a multitude of regional markets.” he added

However, EFG Hermes’ Private Equity division delivered a 15% y-o-y rise in its reported revenues to EGP 27m on the back of higher management fees, following the second closing of the Group’s education fund which stood at $133m. While, the Asset Management division revenues recorded EGP 71m, a drop of 40% y-o-y due to lower incentive fees for the quarter. Accordingly, EFG Hermes’ buy-side business witnessed a 31% y-o-y decrease in revenues to EGP 98m in 2Q19.

Group operating expenses saw an increase of only 9% y-o-y and a drop of 15% Q-o-Q to EGP 672m in Q2 2019, with the increase versus the same quarter last year mainly on higher employee expenses and other operating expenses related to Tanmeyah.

 

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Auditing

Dangote Sugar Refinery Revenue recovers but cost pressures remain

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Dangote Sugar in its recently released 9M 2019 financials reported a marginal y/y growth in revenue to N117.4 billion in 9M 2019 from N116.8 billion in 9M 2018. However, on a q/q basis, Revenue dipped 12.2% q/q to N37.1 billion in Q3 2019 from N42.2 billion in Q2 2019. We note Revenue in Q3 2019 came in higher than Q3 2018 Revenue by 13.4% y/y. Meanwhile, Net Income declined 12.0% y/y to N14.7bn for 9M 2019 while declining 6.2% q/q to N3.7 billion for Q3 2019.

We have revised our revenue estimate and consequently profit lines upward given recovery in volumes on the back of reduction in influx of smuggled sugar as well as recovered market share following price increase by key competitor, Golden Penny (Flourmills). However, we note that cost pressures stemming from higher raw sugar price as well as increasing freight costs due to the Apapa wharf gridlock remains a source of concern. Thus, despite an upward revision of our key profit lines, they remain lower than 2018 numbers.

We raise our target price for Dangote Sugar to N13.87/s from N13.27/s previously while we maintain our Hold recommendation on the stock given. We note that investors’ interest in the stock has improved over the past few months given attractive dividend yield as well as news of the border closure. We are however less optimistic given the uncertainty around the timeline for the border closure. We arrive at our target price using a combination of the DCF and relative valuations in a ratio of 60:40.

Dangote Sugar in its recently released 9M 2019 financials reported a marginal 0.6% y/y rise in Revenue to N117.4 billion in 9M 2019 from N116.8bn in 9M 2018. However, on a q/q basis, Revenue dipped 12.2% q/q to N37.1bn in Q3 2019 from N42.2 billion in Q2 2019. However, we note Revenue in Q3 2019 came in higher than Q3 2018 Revenue by 13.4% y/y which suggests the possibility that the company may be feeling the positive impact of the border closure which has limited entry of smuggled sugar.

Across business segments, sales of the 50kg bag category grew 0.9% y/y to N111.2bn while Revenue from retail sugar was up 2.7% y/y to N3.3bn. On the other hand, Revenues from molasses and freight services were down 26.8% y/y and 7.3% y/y. Furthermore, we compared business segment growth in Q3 2019 with the same period in 2018. We observed strong Q3 2019 y/y recovery in the 50kg bag category (up 15.4% y/y) and Retail sales (up 7.3% y/y). The strong rebound reflects reduction in the influx of smuggled sugar.

The Cost of Sales (adjusted for depreciation) was up 2.4% y/y to N85.4 billion for 9M 2019 from N83.3 billion in 9M 2018. The y/y increase in Cost of Sales reflects the mild pressure on raw sugar prices in the first nine months of the year (our benchmark raw sugar price is up 2.2% y/y). This is notably evident in the 4.6% y/y increase in raw material costs. On a q/q basis, Cost of Sales fell by 13.3%, higher than the 12.2% q/q decline in revenue.

The decline in Cost of Sales reflects lower volumes as well as softer q/q raw sugar price (Q3 2019 vs Q2 2019). Against this backdrop, Gross Profit fell 4.1% y/y to N32.1 billion in 9M 2019 from N33.4 billion in 9M 2018. On a q/q basis, Gross Profit was down 8.6% to N9.0 billion in Q3 2019 from N9.9 billion in Q1 2019. Gross margin was 27.3% in 9M 2019, 1.3ppts lower than the 28.6% reported for 9M 2018.

 

 

 

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Auditing

Banks Boosts Total Assets By 10% to N41.4 Trillion in a Year

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In its bid to show growth in the banking sector, the total assets of the 27 deposit money banks rose by 10 percent, year-on-year to N41.4 trillion in the 12 months ending October 2019.

The growth however represents a slight decline when compared to 11 percent growth recorded in the 12 months ending October 2018.

The Central Bank of Nigeria (CBN) disclosed this in its November Economic report which revealed that total assets and liabilities of banks rose to N41.425 trillion as at October 31st 2019 from N37.338 trillion as at October 31st 2018, representing 10 percent growth.

According to reports, “Total assets and liabilities of commercial banks amounted to N41.4 trillion at end-October 2019, showing 4.6 per cent increase, compared with the level at the end of the preceding month. Funds were sourced, mainly, from increase in unclassified liabilities, and the mobilisation of time, savings and foreign currency deposits. The funds were used, mainly, to acquire unclassified assets, foreign assets and to boost reserves.

“Commercial banks’ credit to the domestic economy rose by 0.6 per cent to N22.3 trillion at end-October 2019, compared with the level at the end of the preceding month. The development was attributed to the rise in its claims on the private sector.

“Total specified liquid assets of banks stood at N14.3 trillion at end October 2019, representing 59.3 per cent of their total current liabilities. At that level, the liquidity ratio was 0.9 percentage point lower than the level at the end of the preceding month, and was 29.30 percentage points above the stipulated minimum liquidity ratio of 30.0 per cent.

Experts commend CBN for cutting lending rate to 13.5%

“The loan-to-deposit ratio, at 61.9 per cent, was 0.3 percentage point below the level at the end of the preceding month and was lower than the maximum ratio of 80.0 per cent by 18.10 percentage points.” The report added.

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Auditing

FCMB Records N135 Billion Earnings, N11 Billion Profit in Nine Months

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FCMB Group Plc has announced a profit after tax of N10.791 billion for the nine months ended September 30, 2019, showing a marginal decline of 4.8 per cent compared with N11.341 billion recorded in the corresponding period of 2018.

According to the results released recently, showed gross earnings of N135.824 billion, up 2.2 per cent from N132.875 billion in 2018. Net interest income rose from N53.235 billion to N56.321 billion, while net fee and commission income fell from N15.459 billion to N15.307 billion in 2019. Net impairment losses fell by 46 per cent from N14.626 billion to N7.852 billion.

However, personnel expenses rose from N18.111 billion to N21.563 billion, just as general and administrative expenses increased from N21.857 billion to N23.439 billion, while other operating expenses grew from N12.267 billion to N13.387 billion.

Consequently, profit before tax fell from N14.767 billion in 2018 to N12.803 billion, while profit after tax stood at N10.791 billion compared with N11.341 billion in 2019.

The nine months performance indicates that FCMB Group has a significant ground to cover in the remaining quarter of 2019 to record higher bottom-line for the full year.The financial institution had posted a growth of 73 per cent in profit in 2019.

The Chairman of FCMB Group, Mr. Oladipupo Jadesimi, said: “In 2018, we continued to move forward on the path of good governance, strengthening and improving our corporate governance structure and bringing it into line with our long-term strategy and the highest international standards. This was in order to increase the confidence of our shareholders, investors and other stakeholders in an environment that is demanding even more transparency.”

Also speaking, the Group Chief Executive of FCMB Group Plc, Mr. Ladi Balogun, said: “The Commercial and Retail Banking Group (which includes First City Monument Bank Limited, Credit Direct Limited, FCMB (UK) Limited and FCMB Microfinance Bank Limited) grew its profit by 61 per cent, driven by improved performance in our consumer finance business and increase in fees and commissions.”

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