THE Century Holdings Ltd (Century) group has gone through various structural changes in the last half year.
During the course of the year the group disposed of Century Discount House.
The move was aimed at reducing duplication of treasury operations within the group as Group Treasury and Century Asset Management Company was offering the same products.
The group also acquired INDE Bank Malawi, a profitable Malawian entity that will fall under Century International.
The group released a set of satisfactory results for the half-year ended June 30. Century recorded a profit before tax of $2,3 billion which was 378% up on the comparable period last year.
The 44% of the profit before tax was derived from the disposal of Century Discount House.
This results in a large difference between headline earnings per share of 29,55 cents and basic earnings per share of $1,37 as the gain from the disposal is treated as an exceptional item.
Although the contribution of the disposal of Century Discount House to the bottom line is a once-off event, one can still track a palpable growth in profitability from Century since its listing in 2001.
Source of income
The bulk of income for the group came from non-interest income which constituted 79% of total income whereas net interest income contributed the remaining 21% to total income.
This reflects the aggressive stance that Century is taking in identifying and taking advantage of the numerous opportunities that this volatile environment offers as opposed to depending on traditional interest income.
In line with this, the net interest margin has slumped from 11% in the comparable period last year to 6% in June.
The hyperinflationary environment has not made operational issues easy.
This is evidenced by Century’s high cost to income ratio which has come down slightly from 74% in the half year 2002 to 68% this half year.
The group obviously needs to rein in this ratio ahead of a time when margins are squeezed.
The group’s balance sheet has not grown exponentially. In fact, it has registered a 22% growth from December 2002.
Century’s loan book currently stands at $16,2 billion from $14,1 billion in December 2002 and management has provisioned for $114 million for bad and doubtful debts. This indicates the level of confidence that management has in the quality of the assets.
Century Bank: Traditionally, LCZ, the mother company of Century Holdings Ltd was the largest contributor to group profits but this situation has been gradually overturned by Century Bank which joined the group in 2001.
Century Bank turned in a profit after tax of $802 million up 4 617% from $17 million in the half year 2002.
The majority of income (50%) was derived from fees and commission income with net interest income and dealing profits contributing 31% and 19% respectively, to total income in line with the group trend of not relying on traditional interest income.
The bank has reined in its cost to income ratio from a staggering 96% in June 2002 to a more manageable 56% in June – no mean feat in this hyperinflationary environment.
The bank’s balance sheet has not grown in line with inflation, growing only by 42% from December 31 2002.
This growth can mainly be accounted for by the growth in cash and bank balances from $609 million to $3,5 billion in this half year (+482%) and a concomitant increase in the loan book from $1,8 billion as at December 2002 to $5,4 billion as at June (+200%).
The quality of the loan book is good thus far as non-performing loans constitute only 3% of the total loans and advances.
Leasing Company of Zimbabwe: The company from which all other group companies were born contributed 22% to group profits for this half year.
LCZ posted a half-year profit before tax of $403 million, a nominal 30% growth from the $309 million achieved in June 2002.
Interest income accounted for 63% of total income. Evidently LCZ is sticking to its knitting – lease financing.
Investments income remained flat at $113 million while fees and commission income experienced a 33% decline from $44 million in June 2002 to $29 million in June this year.
The hyperinflationary environment and movement in interest rates has had a negative impact on lease finance operations.
The company’s cost-to-income ratio increased from 39% in the preceding half-year to 50% in June.
The balance sheet of LCZ has remained more or less stagnant at $13 billion as a result of a deliberate policy not to grow the leasing book because of the high interest rates that the clientele may not be able to service.
Century Investment Bank: This arm comprises Century Asset Management Company, Century Discount House, Century Stockbrokers and Century
Century Discount House and Century Stockbrokers are discontinued operations who contributed 3% to group profits.
Century Advisory Services contribution is as yet negligible.
The Asset Management Company realised before tax profits of $116 million from a loss position of $6 million.
Century International’s contributions are yet to be felt on the bottom line.
Recommendation and valuation: The group has turned in a decent set of results given the capital constraints it has faced.
It is interesting that none of the business units have registered significant balance sheet growth.
This could be for a variety of reasons such as prudent lending policies or lack of business opportunities in the operating environment but our opinion is that it is lack of adequate capital.
Once Century has, through its intended Rights Issue raised some capital, we should see the group being able to take advantage of quality business opportunities that the environment has to offer.
We thus recommend Century as a long term BUY.