Left: DB&G analyst, Shane Ingram Right: NCB's Group Managing Director Patrick Hylton
NATIONAL COMMERCIAL Bank Jamaica followed up on the $1.1 billion posted in Q1 2006 with $1.2 billion in Q2 (March) 2006. While Q2 profits were 111per cent ahead of the $579.1 million booked at the same interval last year, net of the negative impact of the $536 million write-off against its investment in Dyoll in 2005, profits were up by approximately nine per cent.
While many may not be impressed with this result, investors should be encouraged by the positive organic developments during the period - especially in light of the challenging economic conditions. Of particular interest was the expansion in NCBJ's loan business.
Net interest income jumped 21per cent to $2.9 billion for the quarter buoyed by the 30per cent rise in interest from loans; interest from securities remained the largest contributor to net interest income with an increase of three per cent. The strong rise in interest from lending activity was driven by the $2.7 billion additional loans written since September 2005.
NET REVENUE INCREASED
While fee-based income surged 28 per cent to $764.7 million, total non-interest income fell 13 per cent to $1.3 billion chiefly on account of the 40 per cent drop in trading income arising from the fall-off in local equities during the period. Consequently, net revenue increased only eight per cent to $4.22 billion for the quarter. Meanwhile, the productivity ratio continued to trend downwards to a five year low of 62 per cent. While NCBJ has made a conscious effort to improve operating efficiency through tightened staff-related expenses and business reorganisation activities, the firm is still less efficient than the likes of BNSJ that boasts an efficiency ratio of 54.8 per cent as at January 2006.
Profits from associated companies contributed $44.1 million, down from $56.7 million a year earlier. The reduced contribution of associated companies reflects the losses posted by Dyoll as well as the declining profits at Kingston Wharves. After accounting for taxes, net profits surfaced at $1.14 billion (EPS = $0.49) against $579.1 million (EPS = $0.23) a year earlier.
The quarter's performance brought cumulative profits for the six month period to $2.4 billion (EPS = $0.96) compared to $1.55 billion (EPS = $0.63) at March 2005. Against this backdrop of improved earnings, NCBJ rewarded its shareholders with a dividend of $0.14.
NCBJ's credit expansion
strategy will foster improved net interest income, but tightening interest rates will continue to mute interest from securities - the larger contributor to interest income.
In addition, decelerating growth in customer deposits and contracting economic activity stemming from the protracted cement crisis will likely damp growth in investment assets. Much will also depend on when the equities market recovers. In the meantime, NCBJ will likely sustain its efforts to energise fee-based income and improve its efficiency.
As these forces play out, NCBJ should prove difficult to ignore especially with its low price earnings ratio, attractive dividends and aggressive management.
RECOMMENDATIONS
We hold favourable long-term outlook for NCBJ, First Jamaica Investment, DB&G, and BNSJ. Lascelles, JBG, and Seprod could also perform well over the short-term (less than 12 months). For further information on these and other stocks, contact us at 1-888-CALL DBG or visit www.mydbg.com and click our stockbrokerage division for detailed analyses.
Disclaimer: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgement as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G. DB&G and/or its employees or directors and/or any associated person may have an interest in, or interest in the acquisition or disposal of, the securities or class of securities mentioned herein. Call 1-888- CALL DBG if in doubt about the content of this article. Decisions based on information contained in this article are your sole responsibility.
