Custodian Investment Plc earned an after-tax profit of N1 billion from its third-quarter operations, way off the target of N1.75 billion for the quarter. That leaves the investment holding company with a bottom line of N5.7 billion at the end of the third quarter operations in September 2022, a clear N4.5 billion short of its full-year group profit target of N10.2 billion.
The company’s management is however quite hopeful to recover much of the lost ground with a final quarter surprise. It expects a much better final quarter, which appears to be its critical earnings period. By its forecast, the final quarter will deliver a profit of N3.77 billion to the bottom line.
The final quarter profit expectation will need to be exceeded to make up fully for the weakness of the third quarter for the company to head off profit drop for the second year. Custodian Investment closed the 2021 operations with profit down from N12.8 billion in 2020 to N10 billion.
The earnings pattern of the company raises hopes for a final quarter upturn that could give it a better-than-expected closing. That happened in the 2021 financial year when the final quarter contributed over N4 billion or more than 46 percent of the full-year profit figure.
Despite falling short of the target in the third quarter, the profit figure for the quarter was an outstanding growth of more than two and half times the corresponding profit figure of N383 million in the preceding financial year.
The company’s third-quarter outing turned out to be a strong rebound from the second-quarter downturn when it suffered a drop of 28 percent in after-tax profit quarter-on-quarter to N2.5 billion.
The company’s interim financial report for the third quarter ended September 2022 shows that changes in costs and incomes tilted in favour of income, leading to an increase of 25.6 percent in pre-tax profit to N1.5 billion for the quarter.
The main advantage however that gave the big boost to the bottom line is a drop of 35 percent in tax expenses in the quarter to N517 million.
To the management’s expectation, the strong recovery in the third quarter will be reinforced in the final quarter.
One of the major developments in the third quarter is a drop of over 66 percent in provision for outstanding claims quarter-on-quarter, reversing all the way from an upsurge of 91 percent in the second quarter.
The drop also overturned a drop of 19.6 per cent in net income in the second quarter to the outstanding growth of 154 percent to N9.5 billion for the third quarter.
The nine-month earnings position of the company shows gross earnings of N75.5 billion, which represents an increase of 15.8 percent year-on-year. With that, the company’s full-year target gross earnings of N91 billion look quite good to be exceeded.
The increase in revenue was led by interest income that grew by almost 30 percent year-on-year to N10.9 billion. The company’s main revenue line – investment income grew by 13.8 percent to N64.7 billion.
The prospects for a profit boost in the final quarter hinge on aggressive cost-cutting expectations. One of the target cost-cutting lines is net fair value loss, which was already down from close to N22 billion at the end of the third quarter in 2021 to a little over N6 billion at the end of September 2022.
Despite the drop in the third quarter, provision for outstanding claims still mounted the biggest pressure on the bottom line. It shifted from a positive figure of N4 billion in the same period in 2021 to a negative N12 billion at the end of the third quarter.
The shift of position made a big difference in net income, which dropped by 37 percent year-on-year to less than N21 billion at the end of September 2022.
A counter move came from net fair value losses, which dropped from roughly N22 billion to N6.2 billion over the review period. That provided a stabilizing force that permitted an increase of 14 percent in after-tax profit year-on-year to N5.7 billion.
Net fair value gains/losses are continuing in an in-and-out mood for the third year running – having spurred the doubling of profit in 2020, led to a profit drop in 2021, and helped to defend the bottom line in 2022.
Custodian Investment earned 95 kobo per share at the end of September 2022, improving from 92 kobo per share in the same period in 2021.
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