Trinidad and Tobago's banks declare more than $250M profit

Despite reporting huge profits, high price/earnings ratios in the banking sector point to more capital growth in 1996.

The Composite Index reached an all time high of 159.7424 on November 3, 1995 but declined to 152.8091 by November 24, 1994. The market has adjusted for the previous over enthusiasm as well as some disappointing company reports. Readymix recorded the largest decline of 36.22% on account of very poor 1995 half year results, where its after tax profits declined from $1,025M for the half year ended June 30, 1994 to a loss of $2.262M for the corresponding period in 1995, a decrease of 320.68%. This is a $3.287M reversal in the Company's after tax profits. In his report the Chairman stated that a fire at its plant was the main reason for the decline in profitability. We do not anticipate a better performance in the second half and recommended this stock as a sell. Neal and Massy declined 12.5% to close at $2.80. The market has been anticipating poor earnings from this group although it posted improved earnings at the half year.

Royal Bank

Royal Bank, which reached a high of $12.00 on October 27, has since declined 10 cents below its October 13, price of $10.65 to close at $10.55. This is on account of 1995 results which, although excellent were a bit below expectations and pale in comparison to Republic Bank which became the first listed company whose after tax profits surpassed the TT$100 million mark.

Royal Bank's after tax profits increased from $63.720 million in 1994 to $88.292 million in 1995, an increase of 38.6 percent. Earnings per stock increased from 81.7 cents in 1994 to 94.8 cents in 1995. Dividends per stock increased from 34 cents in 1994 to 41 cents in 1995, an increase of 20.6 percent. Return on equity increased from 15.19 percent in 1994 to 19.5 percent. Return on assets increased from 1.15 percent in 1994 to 1.29 percent in 1995. Total assets increased from $5.362 billion in 1994 to $6.844 billion in 1995. The catalyst for this growth was an increase of 64.59 percent in investments in securities which ended the year at $1.520 billion. At the current price of $10.55, the stock is trading with a price/earning ratio of 11.13. If we estimate growth in profits of 20 percent in 1996, the earnings per share would be $1.13.

This means that at the current price, this stock is trading with a price/earning ratio of 9.34, so there is still room for capital growth in this stock.

Republic Bank

Republic Bank's after tax profits increased from $64.255 million in 1994 to $109.762 million in 1995, an increase of 71 percent. Earnings per stock increased from $0.80 in 1994 to $1.37 in 1995 and dividends per stock from 33 cents to 55 cents, an increase of 67 percent. Return on equity increased substantially, from 16.39 percent in 1994 to 24.72 percent in 1995. Return on assets increased from 1.07 percent to 1.60 percent. Total assets increased from $5.851 billion to $6.883 billion. Large growth was seen in short term investments and investments in dated securities, while other investments declined. Republic is now the largest company by assets in Trinidad and Tobago. At the current price of $15.15, the stock is trading with a PE of $11.06. If we were to conservatively estimate the 1996 growth as 20 percent, the earnings per share would be $1.64. Just as the case of Royal Bank, at the current price of $15.15, the stock is trading with a price/earning multiple of 9.22, so added capital gain is expected from this stock.

Scotia Bank

The Bank of Nova Scotia Trinidad and Tobago Limited's after tax profits increased from $43.32 million in 1994 to $52.525 million in 1995. Earnings per stock was 87.78 cents for the current period, an increase of 21.25 percent. This, while excellent and record breaking for the Bank, was below our expectations of 94 cents per stock (based on the excellent results of the first three quarters.) The increase, while mainly attributable to improved performance by the Bank, also had a large contribution from a lower corporation tax rate, as the effective tax rate in 1995 was 34.239 percent as compared with 38.95 percent in 1994. The bank's asset base crossed the $3 billion mark for the first time to close at $3.250 billion, an increase of 14.24 percent over the 1994 figure of $2.845 billion. Loans and other assets grew from $2.061 billion in 1994 to $2.385 billion in 1995, an increase of 15.71 percent. Deposits and other liabilities increased 14.25 percent from $2,660 billion in 1994 to $3.039 in 1995. Its return on equity continued to be the best in the industry, increasing from 23.43 percent in 1994 to 24.88 in 1995. Return on assets also continued to be the best in the industry, increasing from 1.52 percent in 1994 to 1.62 percent in 1995. Shareholders' equity has increased 14.16 percent from $184.906 million to $211.097 million.

The market has responded negatively to Trinidad Cement Limited's 8.21 percent growth in profits for the third quarter of 1995 over the same period in 1994. The one and a half week strike in August was the main reason given for the lower-than-expected earnings. The Chairman, in his report, stated that the Group continued to expand its market share in the region and improvements in operating efficiencies have been made despite the strike. This, coupled with the commissioning of the new kiln at the end of November, is expected to produce strong growth in the final quarter and into next year.

Under Achievers

Since the release of these results, TCL stock has declined 45 cents to close the week at $5.00. There is still some downward pressure on this stock. The market may now look at the fundamentals as they stand at present and ignore all the hype about the future. We have revised our forecasted earnings downward by 3.5 cents per stock unit which brings our 1995 forecast to 38 cents per stock unit. Thus, the stock is trading with a price/earning ratio of 13.16. This is high and we expect some correction in the future.

During November, three previous under-achievers began to show significant growth. Flavorite Foods, which had previously hovered around $1.00, vaulted 33.93 percent to close at $1.50. This was on account of reports that it embarked on a production contract with a previous major competitor, whereby Flavorite would now produce all the previous competitors' ice-cream related products. Agostini's, which has recorded flat profits over the past three years, saw its profits shoot up by 615 percent to $4.820 million for 1995. As a consequence, the stock price rose by 20.5 percent to close at $2.41. PLIPDECO, which is a company with great potential but was previously ignored, has seen its stock price rising. Since July 28, 1995 when the company released its half year report, the stock price has risen $1.00 to close at $2.90 on November 24, an increase of 52.63 percent.

The market anxiously awaits the presentation of the 1996 Budget but, as stated in our last report, we do not anticipate any major shifts in economic policy because the government has changed hands. However, next year would not be the boom year we expected because the large expenditures expected from a Government preparing for a General Election campaign would instead be replaced by a new Government consolidating its policies. Given the present resurgence in the economy and the projects in the pipeline, we still expect the economy to grow next year and in the medium to long term, and, as a consequence, the market will continue to perform well. Since the prices of some stocks have declined a bit, now may be an opportune time to add to your portfolio.

Trinidad and Tobago Stock Market Review courtesy Adrian Manmohan, Investment Analyst, West Indies Stock Brokers Limited (WISE). Tel: (809) 623-4861, 625-4009. Fax (809) 627-5002.