Barita doubles profit in dominant first quarter
Talent recruitment and capital deployment in full driveSunday, March 07, 2021
BY DAVID ROSE
FRESH from a new capital injection in the form of a $13.5-billion additional public offering (APO), Barita has gotten off to a blazing start as the investment brokerage firm's capital deployment saw the firm generate a 103 per cent jump in net profit to $1.02 billion for its first quarter ending December 31, 2020.
The company, which has had three major equity issuances in the last two financial years (FY), has begun to reap the fruits of shareholder confidence as it finally broke the $1-billion mark in quarterly profit which comes just off the heels off a record $2.8 billion in profit for its 2020 FY.
This was supported by the company's 76 per cent rise in net operating revenue which closed out the period at $2 billion. The major driver of this revenue growth came from a 455 per cent increase in foreign exchange trading and translation gains at $485.8 million in a quarter when the Jamaican dollar revalued against the United States dollar and other major currencies.
Another lead earner for the quarter was the 165 per cent growth in gains on investment activities at $669.4 million, with $656.4 million of it being realised gains on the sale of investments on its books. Apart from other income and net interest income, dividend income plus fees and commissions experienced a slight decline due to varying items in the period.
Barita has supported this acceleration in business from its significantly expanded staff pool which has grown from 128 at the end of the 2019 FY to around 142 employees at the end of the 2020 FY, with an additional 56 members of staff on boarded recently. Although this has led to staff costs rising by 38 per cent to $279.2 million, the company has been aggressive in its ambitions to diversify the business units which include the new risk and investment banking units that will be critical to the company's ambition of doing several Caribbean deals in the future.
One of these significant additions has been the inclusion of an assistant vice-president in alternative investments and structured finance plus the entry of several career decade senior talents from other brokerage firms and pension funds.
As a result of this expanding workforce Barita had invested $122.5 million in renovations at the 12-floor PanJam Building, with Barita leasing space on the first, seventh and tenth floors. Administrative costs increased by 32 per cent to $327.4 million to support this continued expansion of the business.
Even with taxation costs coming out higher at $293.4 million, Barita's earnings per share came out at $0.94 versus the $0.61 which factored in the additional shares of the APO. Barita paid out a $0.746 ($809.9 million) interim dividend on February 15 to shareholders.
Barita's total assets were up by 55 per cent to $69.9 million compared to the prior quarter, but slightly lower than the 2020 FY because of the company's dividend payment in October. Barita's activities during the quarter included the disbursal of a $500-million bond to Supreme Ventures Limited and $550 million in short-term loans to Derrimon Trading Limited (DTL), whose APO they also ran as lead arranger.
Total liabilities increased by 33 per cent to $41.4 million – primarily from higher repurchase agreements – while shareholders' equity was up 102 per cent to $28.5 million from the growth in share capital. Barita's cash balance declined from $5.3 billion to $1.9 billion as the company actively deployed capital.
Subsequent to the end of the quarter, Barita took a 20 per cent stake in DTL during its APO which would value the investment between $2 billion and $2.2 billion. Barita will earn two per cent in its arranger fee on the offer and 1.75 per cent on the underwriting commitment of $3.5 billion. Barita also supported its new associate company with the arrangement of a $500-million five-year bond for its long-term capital plans. The DTL APO was oversubscribed past $7 billion.
“Major economists seem to have a consensus view that the global economy may be on course for a rebound in the second half of 2021 on the back of increased vaccine distributions globally. Notwithstanding the phased distribution of vaccines in many advanced economies, and evidence of some degree of economic recovery, we still see a high degree of uncertainty in 2021 for risk assets, given already elevated prices.
”Locally, our economy is likely to lag behind the global recovery; although there are signs of a turnaround, a meaningful economic rebound may come only later into 2022. This view is mostly premised on the expectation that our tourism occupancy levels may not return to pre-COVID 19 levels before 2023.
“Jamaica's ongoing macroeconomic reform has provided the economy with a great degree of absorptive capacity for economic shocks, a factor which is expected to play a supportive role in bringing about an economic rebound,” Barita Chairman Mark Myers ended his report to shareholders.
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