- FILE
Mayberry Investments chairman Christopher Berry (left) and chief executive officer Gary Peart.
Shane Ingram, Contributor
THE YEAR 2005 was particularly challenging for Mayberry Investments as profits collapsed from the $378 million booked in 2004.
Profits surfaced at $88 million for the year ended December 2005 as the downturn in the local stock market resulted in significantly reduced net trading gains and heavy unrealised losses on equity positions.
Net interest income increased nine per cent to $453 million as interest margins strengthened from 18 per cent to 24 per cent to compensate for the slim growth seen for total earning assets.
Meanwhile, net revenue dropped 47 per cent to $414 million as a result of $193 million unrealised losses as well as an $82.3 million drop in income from securities trading. This 70 per cent drop in net trading income stemmed from respective declines of 73 per cent and 66 per cent in gains from equity and fixed income trading.
Net operating revenue was also negatively affected by $73.4 million in foreign exchange losses, more than three times the losses registered in 2004, and $18.5 million in impairment losses on its Dyoll investment.
These negative forces were sufficient to offset the increase in fee-based income, up 19 per cent to $93 million, and dividend income up 377.3 per cent to $47.7 million.
Even as staff-related expenses increased 21.5 per cent, total operating expenses increased only three per cent as other operating expenses fell 14.4 per cent. Notwithstanding, the efficiency ratio shot up to 95 per cent, the highest in the industry for some time now, which contributed to the 94 per cent slump in pre-tax profits to $22.3 million at the end of the year.
However, having benefited from $65.8 million in tax credit in the year, net profits reached $88 million ($0.08 per share) a shadow of the $378.4 million ($0.44 per share) earned in 2004.
The weak operating performance pulled both ROA and ROE to respective six-year lows of 0.5 per cent and five per cent, respectively.
Total assets were measured at $17.4 billion, up from $16.4 billion in 2004. It is worthy of note that close to $1.5 billion were reclassified from trading securities category into available-for-sale category.
While the change in classification is likely explained by the need for the company to reduce the volatility in the profit and loss (P&L), volatility in the P&L will likely persist since 68 per cent of its equities portfolio remains in trading securities.
Equity investments accounted for $1.35 billion (31 per cent) of the total investment securities. Total equity moved from $962 million to $2.6 billion mostly on account of the $1.5 billion injected by the private placement and IPO.
Mayberry's profitability rests heavily on the fortunes of the local equities market and so the company will do well as long as the current upbeat market conditions persist.
While expectations are for the favourable conditions to prevail in the equities market, Mayberry will be hard-pressed to report increased profits for the upcoming quarter. Although this will exert downward pressure on the stock, investors should resist selling below the book value. Moreover, beyond the first quarter results, a rise in the stock market will make MIL one of the more attractive stocks for 2006.
RECOMMENDATIONS
We hold favourable outlook for GraceKennedy, NCBJ, PJAM, DB&G, and BNSJ. Lascelles, JBG, and Seprod could also perform well over the short-term.
Please contact DB&G's Stockbrokerage department at 1-888-CALL DBG for further information on these and other stocks or visit for detailed analyses.
SOURCE: Financial Gleaner, April 21, 2006
