Custodian Investment Overturns Profit Drop In Q2

Custodian Investment Plc gained traction on earnings performance in the second quarter when it generated N3.5 billion or 76 per cent of the half-year closing after-tax profit of N4.6 billion. The strength to build profit came from a slowdown in net fair value losses in the second quarter.

This is in line with our outlook for the company at the end of the first quarter that “the prospects for strengthening or losing profit in the second quarter depend largely on whether net fair value losses would grow further or decline”.

The enhanced second quarter performance has changed the company’s earnings story from a 28 per cent drop in profit in the first quarter to 32.5 per cent growth in the second quarter. This has levelled up the profit drop in the first quarter and permitted a moderate increase of 3 per cent in after-tax profit at the end of the company’s half-year operations in June 2021.

Positive developments that powered the impressive earnings record in the second quarter include a 33 per cent leap in gross earnings, which is a big upturn from the 8 per cent improvement recorded in the first quarter.

Operating and investment income also grew at an accelerated rate of 35 per cent quarter-on-quarter compared to less than a 9 per cent increase in the first quarter. Net realized gains multiplied four times quarter-on-quarter to N704 million and impairment allowance of N136 million in the same period last year shifted to a write-back of N140 million.

On the expenditure side, the change in provision for outstanding and life fund estimates dropped from negative N8.4 billion to negative N1.6 billion over the period. This powered an outstanding growth in net income from a negative of over N1 billion in the same quarter last year to over N9 billion at the end of June 2021.

The improved second-quarter results lifted the year-on-year position of the investment holding company significantly. The company closed the half-year operations with gross earnings of over N42 billion, which is a strong acceleration from an 8 per cent increase in the first quarter to 20.5 per cent growth year-on-year at the half year.

The company’s revenue is made up of operating and investment income of close to N37 billion and interest earnings of over N5 billion.

The company maintained much of the windfall from a change in provision for outstanding claims, annuity and life fund estimates that gave it a big boost in the first quarter. A negative charge of N1.6 billion occurred in the second quarter but the half-year position still showed a positive change of N10.6 billion against a negative figure of N10.3 billion in the same period last year.

The impact of that was significantly positive for the company with net income multiplying eight times year-on-year to N29.5 billion at the end of half-year operations. This represents a big turnaround from a net loss of N2.5 billion at the end of the 2020 financial year.

That gain however was largely in and out, as only a small part of the increase in net income got down to the bottom line. Net fair value losses of over N22 billion consumed much of the increase in provisions.

This is a sudden change in fortunes from net fair value gains of over N5 billion in the same period last year as well as net gains of almost N16 billion at the end of last year to the huge losses recorded at half a year.

There was nevertheless some improvement compared to the first quarter position when net fair value losses claimed more than all the gains in net income.

There was a considerable slowdown in net fair value losses in the second quarter, which accounted for just N3.5 billion of the half-year figure of over N22 billion. The slowdown enabled part of the increase in net income to contribute to the bottom line.

Further support came from net realised gains of over N3 billion, which is a huge increase from only N213 million in the same period last year. This helped the company to moderate the impact of net fair value losses on the bottom line.

Operating expenses remain largely under control so far this year at an increase of 10.7 per cent year-on-year to N23 billion for the half-year. These consist mainly of reinsurance, underwriting and claims-related expenses.

The developments created room for the company to improve profit performance from a 28 per cent drop in after-tax profit in the first quarter to a moderate improvement at the half year. The company lifted after-tax profit from N1.3 billion in the first quarter to N4.6 billion at half a year – a marginal improvement of 2 per cent year-on-year.

Custodian Investment earned 82 kobos per share at the end of half-year trading in June 2021, an improvement from 75 kobos per share in the same period in 2020. It closed the 2020 operations with earnings per share of N1.94 and paid a total cash dividend [interim and final] of 55 kobos per share.

Insidebusiness.ng