Bear market hits Britam, half-year profit down 77pc

Britam Group managing director Benson Wairegi (left) and Board Chairman Francis Muthaura during the firm's Annual General Meeting at the Safari Park Hotel, in Nairobi, on June 26, 2015. The company made Sh624 million net profit in the period ending June 30. FILE | SALATON NJAU |  NATION MEDIA GROUP

In Summary

• Britam is considering cutting its equity portfolio, which accounts for 27 per cent of its investment holdings currently.
• In the period under review, however, the total revenue rose to Sh11 billion from Sh10 billion in the corresponding period in 2014.
• Expenses went up by 38.2 per cent to Sh10.2 billion from Sh7.4 billion due to increase in net insurance benefits and claims paid.

By JOSHUA MASINDE
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A poor run on the stock market saw financial services company, Britam, record a significant decline in its net profit in the first half of 2015.

The company said on Friday that its after tax profit dropped by 77.7 per cent to Sh624.6 million in the first half of 2015 down from Sh2.7 billion as a bear run on the Nairobi Securities Exchange (NSE), which has seen companies lose value on their investments, took a toll on the firm.

As a result, the company said that it was contemplating cutting its equity portfolio, which accounts for 27 per cent of its investment holdings at the moment. The company instead plans to increase its property portfolio to between 20 and 30 per cent of its investment pool.

“The bearish performance of the securities market has negatively impacted on the fair value from financial assets,” the management said in an update, sentiments shared by analysts.

“The bottom line performance was significantly impacted by their equity portfolio, which lost value in the current bear market. As a result, the company booked a net unrealised fair value loss of Sh842.95 million,” analysts at Dyer and Blair said.

Standard Investment Bank (SIB) market analysts said a higher tax charge in the period impacted negatively on Britam's performance.

“Profit before tax was down 65.3 per cent year on year with a higher effective tax charge (40.2 per cent compared to 8.7 per cent in the first half of 2014) leading profit after tax to fall 77.7 per cent year on year.”

CLAIMS

In the period under review, total revenue rose to Sh11 billion from Sh10 billion recorded in the period to June 2014. Gross earned premiums grew by 81.7 per cent to Sh10.2 billion from Sh5.61 billion in the period to June 2015 mainly driven by growth in the general insurance business (accounting for 38.6 per cent of total revenue) following the completion of Real Insurance acquisition in the second half of last year.

Equally, expenses went up by 38.2 per cent to Sh10.2 billion from Sh7.4 billion attributable to an increase in net insurance benefits and claims paid out in the period under review.

The company also paid out interest of Sh390 million to bondholders arising from the Sh6 billion bond offered in 2015. It anticipates that the Britam Towers will be completed in August 2016 and will contribute significantly to its revenues.

“We expect investment income to accelerate driven by diversification to property investments as well as alternative investments,” said Dyer and Blair analysts, who however indicated that exposure to market volatility through equity portfolio could negatively affect Britams’s non-realised gains from equity investments.