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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.
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.
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.
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.
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.
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.