Marguerite Chambers, Contributor
Left: Marguerite Chambers. Right: Chairman of Pan Caribbean Financial Services, Richard Byles. - FILE
PAN CARIBBEAN Financial Services (PCFS) booked $0.51 per share in the first quarter ended March 31, 2006 - identical to that earned in the matching quarter of the prior year. A quarter-over-quarter comparison showed a 1.5 per cent decline in net interest income, due to a five per cent contraction in interest income even despite a curtailed interest expense of 6.4 per cent. Such changes served to marginally increase net interest margin from 31.3 per cent to 32.4 per cent.
Non-interest income climbed 17.5 per cent to $175.2 million as a result of higher income from securities and foreign exchange gains. Due to increased staff costs, operating expenses rose 14.3 per cent to $191.8 million. The rise in expenditure coupled with no significant change in net revenue warranted an increase in the efficiency ratio from 32.6 per cent to 35.8 per cent. With the share of profit from associate companies amounting to $1.7 million, profit before taxation reached $345.4 million relatively on par with the comparable quarter. As tax charges fell by 3.4 per cent to reach $70.7 million, PCFS earned $274.7 million in net profit - a figure on par with the prior year's quarter.
BOOST IN TRADING SECURITIES
The PCFS balance sheet reflected a year-over-year 7.4 per cent increase in total assets to $42.6 billion. This was due to a $1.1 billion boost in trading securities to $1.13 billion, an eight per cent improvement in available for sale securities to $31.6 billion, as well as, a 24 per cent increase in loans and leases to $4.6 billion. A 57.2 per cent improvement in retained earnings served to increase PCFS' total equity by 9.5 per cent to $6.5 billion. Such year-over-year changes warranted a decline in the annualised return on equity from 18.75 per cent to 17.36 per cent. Return on assets also shifted from 2.72 per cent to 2.65 per cent.
Pan Caribbean Financial Services Limited has shown considerable expertise in the execution of the merger in financial year (FY) 2004 and the further consolidation in FY2005 and into FY2006. By acquiring a licence to operate as a commercial bank (as opposed to a merchant bank), there should be added competition to the commercial banking industry. While certainly having the potential to boost margins, the effect of such change should not be apparent until 2007.
However, in the interim, with its brand appeal and corporate image, PCFS intends to push its existing products and services, as well as introduce new ones to the market. In that vein, PCFS's stockbrokerage division is expected to be fully operational in the latter part of 2006 to serve both retail and institutional clients. These objectives are intended to be driven by continued enhancement of the PCFS human resource team which should warrant a continued increase in operating expenditure in coming quarters.
The current market conditions suggest that profits from the financial sector will at best remain flat. Though the PCFS team seems focused on growing its credit assets and consequently net interest margin, this may prove difficult against the backdrop of heightened competition among industry peers. Though it should benefit from its close relationship with LOJ and Sagicor, with the current low interest rate environment, lacklustre stock market and quiet bond market, it will be difficult for PCFS to significantly outperform earnings of the past four quarters.
RECOMMENDATIONS
At present, the PCFS stock trades at its 52-week low. Coupled with the fact that its PE is lower than industry peers, it is certainly a stock that investors should keep in their portfolio for the long-term. Especially since PCFS has the potential to realise improved margins once its commercial banking status is fully in effect in 2007.
We hold favourable long-term outlook for BNSJ, NCBJ, First Jamaica Investment, Carreras, and DB&G. 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 judgment 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.
