Company Analysis

Africa Prudential multiplies profit, heads for big harvest for investors

Africa Prudential, the share registration company, closed half year trading at the end of June 2017 with more than three times the profit figure it posted in the same period last year. Two major developments accounted for the exceptional growth in profit during the period. One is a growth of over 87% in net investment income and the other a drop of 75 per cent in tax expense.

The company posted an after tax profit of N864 million at the end of June, an outstanding growth of 230 per cent year-on-year. That is already 85 per cent of the full year profit the company reported in all of 2016. Based on the strong growth rate so far, the company is likely to exceed last year’s profit figure in the third quarter.

The full year outlook indicates an after tax profit of N1.8 billion for Africa Prudential in 2017. That will be a leap of about 80 per cent above the N1.02 billion after tax profit the company reported at the end of 2016. It lost 30 per cent of the prior year’s profit in 2016 but before then it had maintained stable growth in profit for several years.
There is an all-round improvement in revenue lines of the company, which is led by net investment income from investment securities such as treasury bills, term deposits, commercial paper, bankers acceptances and bonds. The upsurge in net investment income came exclusively from interest income from treasury bills, which advanced by more than 635 per cent to N669 million at the end of half year operations.

While share registration is the main business of the company, registrar’s income is no longer the main income line. Investment income has since overtaken earnings from the core business at a ratio of 7 to 3. Investment securities constitute over N13 billion of the company’s balance sheet size of N18.64 billion at the end of June, 2017. The assets are built on customers’ deposits of about N13 billion.

Total revenue amounted to N1.49 billion at the end of June, up by 52 per cent year-on-year of which net investment income contributed over N1 billion. Earnings outlook indicate gross earnings of N3.2 billion for Africa Prudential at the end of 2017. That will be an increase of close to 31 per cent over the revenue figure of N2.45 billion the company reported in 2016.
Last year had witnessed a decline of 5 per cent in gross income, the first revenue decline in several years. Revenue weakness in recent years reflects the general difficulties facing client companies in the earnings field and the reduced ability to pay dividends to shareholders.

Operating expenses grew by 52 per cent to N540 million, which still permitted a 57 per cent growth in pre-tax profit to N951 million. A 75 per cent drop in tax expenses to N86.5 million enabled the company to lift after tax profit from less than N263 in the same period last year to over N864 million at the end of June.

The company raised earnings per share from 13 kobo to 43 kobo over the review period. The full year earnings expectation is 90 kobo per share for Africa Prudential in 2017. The company earned 51 kobo per share last year and paid out 30 kobo in cash dividend.
The company shows a robust cash flow position with an increase of N1.35 billion in customer deposits at the end of half year. That was the principal factor in a turnaround from a net cash of N139 million used in operating activities to a net cash of N2.40 billion generated from operating activities at the end of June, 2017.

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