With interest rates at elevated levels globally, PROVEN Group has indicated that its loan and investment portfolios are expected to produce higher spreads in the near term.
The Jamaica-based regional financial conglomerate acknowledges that higher-for-longer rates will increase the risk of delinquencies and defaults, citing its expectation that the US Federal Reserve will continue to keep its policy rate higher for a longer period of time, which is expected to be mirrored internationally by other central banks across the globe.
However, PROVEN has explained that the real estate holdings of the group serve as a hedge against inflation, which is driving up interest rates, while the management focuses on expanding the fund management business as a source of fee-income growth. The uptrend in global interest rates, coupled with core credit portfolio growth, has jointly contributed to widening spread income across PROVEN’s banking subsidiaries, with this trend continuing into the final six-month period ending March 31, 2024.
In spite of the higher interest environment, PROVEN delivered commendable half-year results in which both revenues and profits surged. Net revenue closed at US$34.93 million, up 23.3 per cent compared to the US$28.42 million in 2022.
Earnings trajectory set to continue
This revenue expansion is primarily due to the widening of spreads, mainly from the banking division. The board of directors is encouraged by the group’s earnings trajectory over the past six months and expects this performance to continue for the rest of the financial year.
Net interest income totalled US$9.16 million for the six months versus US$6.53 million in the prior year, translating to growth of 40.28 per cent. Fees and commissions amounted to US$5.69 million, down 4.35 per cent from the comparable period last year. This resulted from a slow-down in trading volumes and commission-driven activity within the wealth segment, due to the contraction of investors’ risk appetite. Pension fund management income grew by 18.77 per cent to US$1.96 million for the review period, which is the product of a recovery in asset prices coupled with an uptick in fund inflows year-over-year as its asset management platform grows.
Gross profit on property sales amounted to a small loss of US$16.500 for the six months ended September 2023, which resulted from the carry-over of prior year development expenses.
Earnings from associates
Share of results of associates amounted to US$2.72 million, reflecting year over year decline of 42.69 per cent. This was influenced by JMMBGL’s performance during the past quarter. Other Income increased by 50.20 per cent to US$15.05 million, relative to the prior comparable period’s result of US$10.02 million.
This primarily represents a normalisation of manufacturing margins, which were squeezed in 2022 by the large increase in commodity prices combined with a price compact (between government and the private sector) to hold selling prices for an eight-month period.
Total operating expenses totalled US$32.70 million, a 6.6 per cent rise year-over-year. This increase was led by a 17.8 per cent rise in staff costs over the period, partly due to one-off restructuring costs.
The group produced consolidated net profit after tax of US$4.83 million for the six-month period, which translates to net profit attributable to owners of the company of US$3.71 million, compared to US$1.71 million in the prior year. Earnings per share amounted to US$0.0046 per share for the six-month period.
The group’s assets and liabilities remained stable over the period, with only slight changes at the margin. PROVEN Group’s off-balance sheet assets expanded to US$595 million as of September 30, 2023. Total equity attributable to shareholders of the company is US$133.05 million as of September 30, 2023, up 7.76 per cent from US$123.47 million as of September 30, 2022.
This was primarily due to an improvement in the investment revaluation reserve and increased profits. As a result of the positive performance, the board approved an interim dividend payment of US$0.0015 per share to all ordinary shareholders on record as of November 27, 2023, and paid on December 13, 2023.
This brings the total amount declared for the six-month period to US$0.0035 per share, which represents an annualised tax-free dividend yield of 4.76 per cent based on the average share price of US$0.147 for the six months ended September 30, 2023.