CBL Corporation Limited has produced another strong set of (1H15) results and continues to beat management forecasts
CBL Corporation Limited (CBL) released its 1H15 results to 30 June 2015 last week, with an operating profit of NZ$23.6m that was 2.5% above management forecast and 72.2% up on 1H14.
Key figures from the 1H15 results included:
- Revenue/Gross Written Premium (GWP) for 1H15 was NZ$123.7 (1H14 NZ$115.1m)
- Operating profit/EBIT was up 72.2% to NZ$23.6m (1H14 NZ$13.7m)
- NPAT was NZ$22.4m which was significantly up on 1H14 figure of NZ$1.9m that was impacted by unrealised foreign exchange losses on revaluation of the company’s assets
- The main operating subsidiary, CBL Insurance Limited, performed strongly with excellent insurance ratios headlined by a combined ratio of 78.6% for 1H15 (from 87.2% in 1H14). The combined ratio is a measure of how profitable the insurance operations are before any investment income of premiums. 100% is breakeven and the lower the measure the more profitable the insurance operations. Most large insurers run in high 90%’s or even over 100% and rely on investment income from the large volume of premiums held to make a profit
- The components of the combined ratio are detailed below with most areas seeing improvement, particularly the loss ratio which is an indication of amount paid out on claims:
- Loss ratio 36.2% (1H14 44.8%)
- Acquisition expense ratio 33.7% (1H14 34.6%)
- Administration expense ratio 8.7% (1H14 7.9%)
- Combined ratio 78.6% (FY13 87.3%)
- CBL Insurance Limited accounted for the majority of the operating profit, recording NZ$22.0m for 1H15 (1H14 NZ$11.4m)
- On 29th July 2015, CBL (the holding company) injected NZ$10m in fresh capital into CBL Insurance Limited, providing additional capital growth and to improve the insurance entities’ capital ratios
- AM Best rating agency upgraded CBL Insurance Limited’s credit rating in June 2015 from ‘B+’ positive outlook to ‘B++’ stable outlook – for further information see Rating Agency A.M. Best upgrades CBL Corporation
- Total assets rose NZ$64.1m over the past six months to NZ$469.4m as the company continues to grow
- Total equity increased a massive 33% or NZ$22.6m to NZ$90.1m over the same period as a result of the strong NPAT contribution and only small amount of dividends paid (NZ$0.8m)
- Debt to equity improved significantly from 1.25x at 30 June 2014 to 0.76x at 30 June 2015
- EBIT interest coverage was 8.0x (down from 8.5x over 1H14)
With respect to the potential IPO the company stated:
“CBL continues its discussions with banking advisers UBS, Bancorp, and Forsyth Barr to look at longer term capital options, and these are being close to being completed. There continues to be media speculation on the potential possibilities, and the Company will report when it is in a position to do so”
Should the company proceed with an IPO and capital raising, this would be viewed as a significant credit positive for the bonds (and also increase the probability of call at first opportunity).
Overall, the 1H15 results were strong and profitability and gearing ratios have exceeded the management expectations that were set out in the April 2014 research report written at the time of the initial bond issue. The recent upgrade by AM Best of the main insurance subsidiary, CBL Insurance Limited, underpins the improvement.
The CBL 8.25% fixed rate bond with a maturity date of 17 April 2019 (callable at the company’s discretion at $103.00 on 17 April 2017 or $101.50 on 17 April 2018) has performed extremely well since it was issued in April 2014. It is currently offered at an indicative price of $107.00 or a yield to maturity of 6.08% and yield to call of 5.52%. Given the improving credit metrics and potential for additional equity capital it is still considered good value at those levels.
Existing owners with a login and password can access further details of the company results from its Investor Centre. Alternatively existing or interested investors can request a copy of the latest results release from their FIIG representative.
All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities. The CBL bonds mentioned in this article are available to both retail and wholesale investors from A$10,000 minimum parcels.