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Investment in Treasury Bills proves to be the right route for Africa Prudential

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THUR, FEBRUARY 28 2019-theG&BJournal- Only savvy managers can deliver such higher returns to shareholders even amid a myriad of challenges besetting business.

Africa Prudential Plc took advantage of the high yield environment to boost profit, despite pressure on margins. The company has been investing in short term government securities in the last five years.

Analysts say African Prudential and banks that have strong capital buffers could make money this year because yields are expected to remain elevated as the Central Bank of Nigeria (CBN) is projected to intensify its Open Market Operations (OMO).

For the year ended December 2018, Africa Prudential’s gross earnings were up 35.34 percent to N4.48 billion from N3.31 billion the previous year. The audited financial statement for the year ended December 2018 showed profit after tax increased by 14.03 percent to N1.95 billion from N1.71 billion as at December 2017.

Interest income on T- bills which was down by 23.76 percent in between 2015 and 2016 financial year, when a precipitous drop in oil price stoked severe dollar shortages and tipped the country into its first recession in 25 years, surged by 124.03 percent in between 2016 and 2017 financial year.

Yields surged by 106.81 percent to N778.77 billion in December 2018 as against N376.56 billion as at December 2017.

Interest income also followed the same growth trajectory as it went up 28.57 percent to N3.06 billion in the period under review as against N2.38 billion as at December 2017.

Interest income on loans and advances surged by 156.05 percent to N1.91 billion in December 2018 as against N746.65 million the previous year.

However, return on equity (ROE) fell to 22.70 percent in the period under review from 24.67 percent the previous year while return on assets dropped 09.16 percent in December 2018 as against 7.79 percent  as at December 2017.

Interestingly, the growth at the bottom line (profit) was largely driven by a N1.07 billion interest income from treasury bills, albeit lower than the figure of N1.41 billion recorded in 2017.

Net profit margin, another measure of profitability and efficiency, declined to 43.52 percent in December 2018 from 52 percent as at December 2017.

But the company has been spending less on operating expenses to produce each unit of revenue as operating expense margin fell to 77.40 percent in December 2018 from 150.30 percent as at December 2017.

The firm proposed plans to pay a gross dividend of ₦1 billion. The payment of dividend represented 0.50 kobo per ordinary share of 50 kobo each.

The company’s share price closed at N4.84 Wednesday on the floor of the exchange while it has a market capitalization of N9.68 billion. Its shares, theG&BJournal believe are undervalued as price to earnings ratio was 4.94 times earnings.

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