Custodian Investment Plc generated an after-tax profit of N1.5 billion in the third quarter ended September 2020, almost the N1.6 billion it forecast for the entire second half. The pleasant surprise came from a windfall from net fair value gain of N4.7 billion in the third quarter.
Management had expected that net fair value gains would drop sharply in the second half from N5.2 billion at half year to below N2.7 billion at full year. The contrary happened, shooting up the figure to almost N10 billion at the end of the third quarter.
With that, the investment holding company closed the third quarter operations with an after-tax profit of N6 billion, virtually at par with the N6.1 billion it expected at full year.
The profit figure for the third quarter is an increase of 9 per cent quarter-on-quarter from a top record growth of 46 per cent in gross earnings over the same period. However, operating expenses nearly doubled over the period and claimed more than the entire increase in revenue.
The result is a net loss of N1.3 billion for the quarter but the net fair value windfall changed the earnings story for the company in the third quarter. The net loss means that operating cost exceeded revenue in the quarter.
The second half is however seeing the stronger performance of revenue than in the first that management expected. With revenue of N22.5 billion raked in in the third quarter, gross income was cruising toward the N73-billion target for the 2020 full year by the end of the third quarter.
At that rate, gross income might overshoot full-year projection to stand in the region of N80 billion for Custodian Investment in 2020.
The fourth quarter isn’t that promising a repeat of the windfall that enabled the company to avert a loss position in the third quarter. In the absence of further strong gains in asset value in the final quarter, it appears quite difficult for the company to close the quarter on profit.
The year-on-year position for Custodian Investment shows that net value gain made the difference in the company’s finances at the end of the third quarter operations. With a net loss that occurred in the third quarter, net income plunged further from 46 per cent at the end of June to 78 per cent at the end of September 2020.
At N2.3 billion, net income was less than half of the management expenses of over N5 billion at the end of the third quarter. The strong growth in net fair value gain in the quarter raised the figure for the nine months of the year to N9.9 billion. The gain produced the pre-tax profit of N7.3 billion the company reported at the end of September 2020.
The increase in operating expenses far exceeded the improvement in gross earnings in 2020. This is in line with our expectation that “management expenses are expected to run upward in the second half when 57 per cent of the projected full-year figure is expected to be incurred”.
Operating cost rose by 54.6 per cent year-on-year to stand at N55 billion at the end of September last year. The growth was driven mainly by an increase of over 82 per cent in claims related expenses and provisions to N33.5 billion at the end of the third quarter.
An increase of 27 per cent in reinsurance expenses to nearly N18 billion also contributed to the high growth in operating expenses over the review period.
The company’s position at the end of the third quarter is that operating expenses claimed 96 per cent of gross income compared to 77 per cent in the same period in 2019. Gross earnings amounted to N57 billion at the end of September 2020, which is an increase of 24 per cent year-on-year.
The company’s revenue is derived largely from premium income from life and non-life businesses as well as investment earnings. The company operates two insurance companies and other subsidiaries in trusteeship/secretarial services and pension funds management.
Members of the Custodian Investment group include Custodian and Allied Insurance Limited, which carries on general insurance business and Custodian Life Assurance Limited that underwrites life insurance risks. Custodian Trustees Limited carries on the business of trusteeship and company secretarial services and CrusaderSterling Pensions Limited engages in the administration and management of pension fund assets.
The company closed the third quarter operations with an after-tax profit of N6 billion, which is an increase of 10.5 per cent year-on-year. This is already at par with the group’s after-tax profit of N6 billion in 2019. The prospects for either profit or loss in the final quarter for the company are uncertain.
Custodian Investment earned 99 kobo per share at the end of September 2020, improving from 89 kobo per share in the same period in 2019. It closed the 2019 operations with earnings per share of 97 kobo and paid a total cash dividend [interim and final] of 45 kobo per share. It paid an interim cash dividend of 10 kobos per share to shareholders in September 2020.
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