Africa Prudential: H1 earnings looking up from three-year fall

Africa Prudential Plc reinforced its earnings momentum in the second quarter and its half-year performance is looking up for the first time after three years of declining profit.

Half-year interim report of the registrar and investor relations service company shows that profit accelerated from N403 million in the first quarter to N533 million in the second to close at N936 million for the half year ended June 2022.

This is a significant gain in speed from 5 percent profit improvement in the first quarter to 13 percent growth at half year. The upward move raises hopes for a turnaround for the company after having lost profit every year since 2019.

The company’s peak figure of almost N2 billion in 2018 went down to N1.7 billion in 2019, dropped to N1.45 billion in 2020 and slipped further by 2 percent to N1.41 billion in 2021 — the lowest in five years.

Profit recovery move this year is powered by revenue gains with gross earnings growing by over 19 percent year-on-year to nearly N2 billion at half year. This is up from less than 4 percent increase in gross income to N3.52 billion for the 2021 full year.

The company’s management is responding to a challenge of underperformance of its core business of share registration in recent years. It succeeded in growing earnings from customer services by 79 percent year-on-year to N928 million at half year, accelerating from 30 percent growth at the end of last year.

Obong Idiong, the company’s chief executive officer, traced the new strength in revenue to a diversification effort that has yielded multiple income lines. Income from newly added digital services is growing rapidly for the second year from N58.5 percent to N667 million at the end of last year to 355 percent year-on-year to N562 million at the end of June.

Commenting on the company’s performance, Idiong said “the 355 percent growth in digital technology income highlights the success of our switch to a technology-oriented business and we remain positive about the potential growth from this revenue stream in the medium to long term”.

However, the company’s other major income line — interest earnings from investments continues to disappoint. Interest income dropped by 8 percent to N1 billion at half year after going down by 12.5 percent to N2.1 billion at the end of last year.

Management is rebuilding interest generating investments — debt instruments from a drop in the preceding year to an increase of roughly 27 percent to N13 billion at the end of half year 2022. The company’s investment portfolio however remains well below the peak of over N17 billion at the end of 2018.

Other incomes also dropped over the review period by close to 75 percent to below N22 million. Drops in credit loss expense and finance costs helped moderate the impact of revenue losses on the bottom line.

Cost efficiency achieved in other areas also enabled the company’s management to jerk up profit margin from 40 percent at the end of last year to 47 percent at half year. It is however a decline from 49.6 percent in the same period in 2021.

A major event in the company’s balance sheet is a 23 times multiplication of cash-based resources to nearly N20 billion over the six months of operations this year. The inflow has expanded the size of the balance sheet by 142 percent to over N38 billion at June 2022 close.