Afriprudential Plc yesterday released its 2nd quarter 2017 results, and they are fantastic. Profit before tax increased from N605 million in 2016 to N950 million in 2017.
Earnings per share also jumped from 13 kobo in 2016 to 43 kobo in 2017. The driver of this result was an increase in investment income which jumped massively from N535 million in 2016 to N1 billion in 2017.
Explanatory notes attached to the result throw more light on what caused the spike in investment income. The company made a massive increase in interest made from held to maturity treasury bills. Interest from treasury bills spiked from N90.9 million in June 2016 to N668 million in June 2017.
Why the stock is a short term buy
The company’s half year Earnings Per Share (EPS) of 43 kobo is almost equivalent to its 2016 full year Earnings Per Share (EPS) of 51 kobo. Afriprudential Plc last year paid a dividend of 30 kobo per share giving a 69% earnings payout ratio. The company is therefore on track to exceeding its 2016 Earnings Per Share and possibly paying a bigger dividend. Afriprud in 2015 paid a total of 60 kobo as final dividend, from an Earnings Per Share of 71 kobo.
This may be a one time event
Companies like Afriprud registrars usually have access to large volumes of cash in the form of unpaid dividends which they hold for a period of time before returning to companies. These monies are then invested in short term investments such as treasury bills and bankers acceptances. Current inflation rates are trending lower and with that, rates on treasury bills may follow in tandem. So, the huge spike in investment income may not be sustainable.
The Securities and Exchange Commission (SEC) has carried a successful campaign for shareholders to register for electronic dividends. The huge unclaimed dividends which serves as a source of income for registrars is gradually getting smaller.Though the company is presently diversifying into other areas, the new investments may take time to yield returns.
