The CBL CORP FPO NZX (ASX: CBL) share price dived 7% after its full-year results this morning, despite the specialty insurer beating its own forecasts to post strong operating profit growth for the full year. Here's what you need to know (all figures are in NZ Dollars):
- Gross written premium (GWP) rose 33% to $322 million
- Operating profit (a measure of ongoing insurance profits) rose 27% to $76 million
- Net profit after tax (NPAT) fell 16% to $30 million
- Underlying NPAT rose 24% to $47 million
- Earnings per share fell 22% to 12.6 cents per share
- Dividends of 5 cents per share
- Outlook for 2017 to continue roll-out of new products, develop programs in emerging markets like India, Vietnam, and Mexico
- More small acquisitions possibly on the horizon
So What?
CBL's results were a bit convoluted on the face of it, but as I worked through the various types of profit reported, I felt that management was actually quite fair about outlining the factors that lead to their final result.
Basically, CBL earned $30 million in statutory profit – this is the money it actually made. However, once you account for big foreign exchange headwinds ($9.8 million) and back out the capital raising and acquisition costs ($4.2 million), finance costs due to early repayment of medium-term notes ($6.7 million), include a tax benefit ($4.6 million), and exclude the earnings benefit from the SFS acquisition ($2.8 million), you're left with underlying profit of $43.9 million.
Once you factor in the dilution from the capital raising, you get growth of 12.8%, taking underlying earnings per share to 19.4 cents.
The core CBL insurance and Assetinsure businesses performed well, with meaningfully lower combined ratios (lower is better) and strong profit growth. CBL Insurance Europe also grew profits, although the structure of this business has changed due to writing business with clients directly (instead of reinsuring) resulting in sharply higher costs and premiums written. The small EISL segment struggled and profits halved, leading to a new executive appointment, while PFP in the UK grew its market share, further cementing itself as the market leader.
So What?
Although CBL declined to provide guidance for 2017, it expects a 'strong' year due to expansion in new markets, rolling out new products in existing markets, and focusing on efficiencies and a stronger IT platform at some smaller businesses. CBL will also receive a full-year contribution from the SFS business and the reinvented CBL Insurance Europe business.
CBL has a strong balance sheet with $400 million of available cash (including some held as backing for reinsurance and cash in subsidiary businesses) and $96 million in debt.
Although priced at 27x 2016's earnings, this fades to around 18x on an underlying earnings per share basis. I don't think that is expensive for a business of this type, with such heavy insider ownership and a track record of success. I think CBL is great value – especially after the fall this morning – but the only trouble is getting a hold of shares due to very low liquidity.
