Africa Prudential Plc sustained hopes for a turnaround in the 2022 financial year with a closing after tax profit of about N1.3 billion for the nine months of operations. This is in spite of a sharp slowdown in quarterly profit improvement from 12 percent in the second quarter to 8 percent quarter-on-quarter to N352 million in the third.
The company’s interim earnings report for the third quarter ended September 2022 shows however that the year-on-year profit growth remains promising at 12 percent, just a slip from the 13 percent increase to N936 million at half year.
A major challenge in the third quarter that caused the slowdown in profit is loss of revenue from the core business of the company. Revenue from contract with customers fell by 30.6 percent quarter-on-quarter to N222 million during the quarter.
The revenue drop in the quarter was led by a reversed growth in income from digital technology services from leading revenue growth at half year to a drop of over 61 per cent quarter-on-quarter to less than N65 million.
Interest earnings for the quarter however provided more than a compensating growth of about 66 per cent quarter-on-quarter to roughly N757 million over the same period. This accounted exclusively for an increase of 26 per cent in gross earnings quarter-on-quarter to N979 million in the third quarter.
The development is in line with our expectation in the half year review that “some improvement in interest income may be expected in view of management’s build-up of the investment portfolio and the general increase in interest rates”.
Operating and tax expenses grew ahead of revenue in the third quarter and eroded profit margin, which went down from 41.8 per cent in the same quarter last year to less than 36 per cent in the third quarter of 2022. Loss of profit margin accounted for the slowdown in profit improvement in the third quarter.
The company’s nine-month position reflects the upturn in interest income that is the main revenue line of the company. Despite the drop in the third quarter, income from digital technology services still advanced by 115.5 percent year-on-year to N627 million.
Gross earnings stepped up from 19 percent growth year-on-year at half year to 21.4 percent to close at almost N3 billion at the end of September 2022.
Earnings from customer services were weakened by the drop in the third quarter, lowering the year-on-year growth from 79 per cent at half year to 37 percent at the end of the third quarter.
Interest income from investments improved by 13 percent over the same period to close at N1.8 billion in September. This is a rebound from a drop of 8 per cent to N1 billion at half year.
The company’s expenses moderated relative to revenue at the end of the third quarter, which enabled an increase of 19.4 percent in pre-tax profit to N1.6 billion at the end of the third quarter.
An increase of 60 percent in income tax expenses to N317 million lowered after tax profit growth to 12 percent year-on-year to close at slightly below N1.3 billion at the end of September 2022. That is already quite close to the closing after tax profit of N1.4 billion for the company’s 2021 operations.
Net profit margin however went down from 47.1 percent in the same period last year to 43.4 percent at the end of September 2022.
A further slowdown in profit growth may happen in the final quarter but that isn’t likely to prevent an upturn for the company from three years of declining profit since 2019. The company’s profit has been on a downward trend from about N2 billion it posted in 2018 to N1.4 billion in 2021.
The company earned 64 kobo per share at the end of the third quarter, improving from 58 kobo per share in the same period in 2021.
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