Thu | May 23, 2019

Sagicor Financial profit projected to jump 50% on Scotia Life acquisition

Published:Friday | November 30, 2018 | 12:00 AM

The acquisition of Scotiabank's life insurance businesses in Jamaica and Trinidad & Tobago are projected to increase profit by 50 per cent for Sagicor Financial Corporation, SFC, Canadian filings indicate.

The prospective owner of Sagicor Financial, Alignvest of Canada, is also telegraphing that there are more deals to be made.

"The Scotia Life acquisition is not the only one we are working on. Sagicor is the natural consolidator in the region and is a true regional champion," said Alignvest partner and incoming chief financial officer at Sagicor, AndrÈ Mousseau, in the conference call on Wednesday.

"With our access to capital, we believe there are more accretive acquisitions to come," he added.

Alignvest's co-founders include Reza Satchu, a serial entrepreneur who flipped companies worth over US$900 million before he turned 40.

Profits at Sagicor are projected to hit US$115 million in 2020, up from US$77 million in 2019, US$44 million in 2018 after factoring a write-down on Barbados bonds, and US$62.1 million in 2017, Alignvest filings indicate.

Alignvest also indicated that it plans to spend US$240 million to acquire the Scotia insurance portfolio - split US$144 million for Scotia Jamaica Life Insurance Company and US$96 million for Scotia Life Trinidad & Tobago.

For Sagicor Financial, geographically, 46 per cent of the regional financial and insurance conglomerate's revenues come from its Jamaica operations, 14 per cent from Trinidad & Tobago, 14 per cent from Barbados, 13 per cent from the United States, and 13 per cent from other Caribbean countries.

The projected rise in 2020 revenues are expected to come from US$8 million of 'organic' growth from existing operations and US$30 million in projected new revenues from the sale of Scotia life insurance portfolios in both countries to Sagicor.

The forecast for revenue growth is conservative, according to Alignvest. That's because revenue from the Scotia deal in Jamaica should start to flow to the Canadian company after June 2019. The deal is projected to close in the first half of 2020 in Trinidad & Tobago.

"While we believe, particularly Jamaica, that we will be able to be close by 2019, we are not putting any net income from the acquisitions in our 2019 projections," said Mousseau.

Additionally, the projections for profit do not include any possible plans to refinance US$320 million in Sagicor bonds at 8.87 per cent. Alignvest sees that rate as too high and wants to get a cheaper coupon rate going forward.

"These notes are callable in August 2019 and we believe there can be material savings, particularly with the additional equity we are injecting through the transaction and the additional earning power from the Scotia transaction. Any upside from that are not yet factored into our forward numbers," said Mousseau.

Alignvest announced its plans to acquire Sagicor Financial on Tuesday for US$536 million. Sagicor, which operates in 22 markets, is projected to hold US$7 billion in assets by 2019.

The projected decline in 2018 net profit is already factored into Sagicor's books since the September third-quarter, which recorded a US$43-million write-down of bonds due to the debt restructuring by the Barbados government that forms part of its reform deal with the International Monetary Fund. Sagicor has total exposure to Barbados government debt of US$242 million in a debt portfolio of US$4.2 billion, said Alignvest.