Namibia CPI – October 2014

CPI

Annual inflation for October slowed by 0.3 percentage points, to 5.0 percent as compared to 5.3 percent recorded a month earlier. On a monthly basis, the inflation rate increased to 0.2 percent. The annual decline in inflation was primarily on account of base effects, with food inflation continuing to slow and transport prices remaining unchanged month-on-month. Housing utilities, the largest weighting in the CPI basket, also saw no growth during October.

Education has surpassed food and non-alcoholic beverages as basket category with the highest inflation, with the cost of tertiary education continuing to grow at a rate of 9.8% per year. The rate of growth of food and non-alcoholic beverage prices has declined for the past 5 months, whereas the cost of alcoholic beverages and tobacco continues to grow at an increasing pace. The Communications category continues to see prices decrease year on year (down 1.1%), and is thus the only category of expenditure seeing actual price declines.

CPI1

 

The decline in communications prices is a direct result of the low interconnection rates between operators within the country. The increased use of internet based communication has added further competition within the sector which has contributed to the decrease in prices.

Decreases in the global oil price are expected to filter through to the consumer in two parts over the next 18 months. First round effects should be felt in the next two months as fuel pump prices decline, while second round effects are expected to have a price-reducing effect on food prices 8-18 months out.

On account of falling oil prices, we have revised our forecast average inflation for 2014 to 5.4% in 2014, down from previous forecasts of 5.7%. We maintain our view that demand-factors are starting to lead inflation in Namibia, as strong growth in the economy with rural urban migration contributing to demand driven increases in prices. Administered and services prices are especially prone to increases caused by these effects. Recent unrest about the cost of housing is not likely to have a long term effect on the rate at which these prices grow but may have a short term influence on the rate of price increases.

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Trustco Group Holdings 1H15 Initial Impression

1H15 Results

Trustco (TUC) released results for the first half of FY15 ended 30 September 2014. The interim results reflect a strong operational performance with profitfor the period up 97.8% y/y. Basic EPS and HEPS rose 115.1% y/y to 18.48c and 18.35c, respectively. The board declared aninterim dividend of 2.75cps, after no interim dividends was declared in 1H13.

Operational and Segmental Highlights

Truscto previously operated under four segments, Insurance, Education, Finance and Properties, however, after acquiring Fides Bank, the company spilt into two divisions, namely Banking, which include capital loans and student loans; and Insurance.

Banking

After the acquisition of Fides the banking operations now run a portfolio of lending assets and depositsacross five branches in Namibia. Trustco managed to increase revenue for the banking division by 30.3% to N$62.1m in 1H15, while net profit after tax is up 73.4% to N$34.0m. Gross advances grew by 46% from the comparative interim period of 2013, predominantly dueto the increased demand for student loans, but also coupled with an increase insecured lending.

Insurance

Total insurance revenue increased 41.6% to N$393.7m and net profit was up a substantial 108.3% to N$94.6m.This division benefited from substantial gains in its investment portfolio. N$15.4m of fair value gains was augmented with realised gains of N$258.0m.

Investment portfolio

Net profit after tax from the investment portfolio increased 456.4% to N$86.0m which was to a large extent on account of the fair value gains as mentioned earlier. Thenet profit after tax from the investment portfolio made up more than 90% of total insurance revenue.

Namibia Insurance

The local insurance division delivered disappointing results as management decided not to increase insurance premiums for FY15 to remain competitive in the Namibian market. Net profit from the local insurance operations decreased 26.5% to N$48.2m from N$65.6m in 1H14.

Africa

Performance from the rest ofthe African operations remained a drag on revenuegrowth. The African leg of the insurance division delivered inferior results, with revenue down 63.5% to N$9.2m, and the loss after tax increasing further to N$39.6m. The decline in insurance premiums is predominantly due to the termination of the legacy business in South Africa which operated a high premiumsreceipting base, but very low margins in FY14

ValuationWe are currently reviewing our Trustco valuation model and will update our forecasts and target price accordingly.

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