First Mutual Holdings (FML) reported a 44% growth in after-tax profit for the first five months of the year to May, buoyed by a bull run on the Zimbabwe Stock Exchange (ZSE) that earned the group US$5,5 million in investment income, management has said.
The group’s investment income registered a 1050% growth from a loss of US$581 000 in the same period prior year, FML chief executive Douglas Hoto in a trading update at the company annual general meeting (AGM) said last week.
“Out of that US$5,5 million, its mainly the bull run in major shares which we own which includes Econet, Delta, Innscor and others, but mainly the top two have shown significant increase since beginning of the year,” Hoto said on the sidelines of the AGM.
Hoto warned the value of FML’s 19,8% equity stake, currently worth about US43,4 million, in RTG could be affected after the a judgment was passed in favour of RTG’s creditors. FML holds a 19,8% stake in RTG.
Hoto said the ZSE represents potential value for investors under current conditions.
“If you look at our investors, they take a long-term view, so we believe those shares that are able to pay a dividend and hold their value are a good place to be and as you know with the fears of the possible return of hyperinflation, the shares are likely to retain value. As you know, after the introduction of the bond notes, the stock market actually rallied,” Hoto said.
Hoto’s remarks come after Delta and Econet were named by IH Securities at the end of April 2017 as potential favourites for investors and recommended as good buys. IH Securties recommended in its April Monthly Snapshot a buy on Axia, Delta and Econet, based on its analysis that expects a one-year return of at least 20% on the counters.
The ZSE rally has seen the market cap rising beyond US$5 billion. The insurance sector contributes 6% to ZSE market cap.
In his trading update, Hoto said although economic conditions remain difficult, his business was making the best of the situation.
“As a business, we have taken the view that we have to do with what we have and we have substantially been working in line with our plan, although there are areas we are behind and others we are ahead,” he said.
“Notably, the difficult points are in the area of short term insurance both at retail and corporate level, where the premium income is lower than plan for the first five months and also the difficulty in collections. The annual policy is being turned into a monthly and quarterly policy, so there is less cash coming from what we expected.”
Hoto added that collections remained difficult.
FML said gross premiums written slipped by 2% to US$48 million, while net earned premium also went down by 1% to US$44,4million, resulting in a technical result of US$9 million, down from US$9,5 million.
Total direct expenses, comprising claims and commissions, remained flat at US$35,4 million. The group’s operating profit stood at US$2,8 million after slipping 14%.
Rental income slid by 5%, but occupancies remained flat.
“Occupancy remains the same primarily because of rent reduction negotiations with our key tenants in key buildings,” Hoto said.