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Lombard Bank, the organisation that sports a logo depicting a closed door and window, registered very good financial results with the Group’s profit before tax reaching Lm3.67 million against the Lm2.54 million registered in 2004.
Lombard Bank Malta plc yesterday issued a company announcement publishing their preliminary profit statement, which shows the profit and loss account and balance sheet for the Group and the Bank as at 31 December 2005.
No notes or segmental accounts were published.
The profit before tax is a remarkable increase of 44.2 per cent year on year. These positive results came about as net interest income increased by 30.2 per cent to reach Lm4.78million and the core operations of the bank improved the net interest margin to reach 51.2 per cent.
The Bank improved its cost-income ratio to reach 38.2 per cent. When Lombard announced its half-year results this ratio stood at 40.7 per cent. Despite experiencing a year-on-year increase in costs, the bank’s income increased at a faster pace.
Lombard’s cost to income ratio is the lowest compared to the other locally listed banks.
To assess a bank’s future revenue stream, it is imperative to analyse its customer loans and advances. In 2005 these increased by 14 per cent. The Bank’s credit quality improved, releasing Lm290,000 in impairment allowances. This reversal went straight to the bottom line improving profitability. In fact this impairment reversal equates to 7 per cent of the Profit before Tax.
The Group’s earnings per share is now a healthy 56c6 against the 38 cents of last year. As at 30 June 2005 the EPS was 24c3. This shows that in the second half of the financial year, the Group fared better.
The post tax profits at Lm2.37million increased also the shareholders’ funds. Shareholders’ funds in 2005 are Lm16.6million, an increase of 25 per cent over what they were in 2004. The total assets of the Group reached a healthy Lm188million.
Lombard commented about an increase of Lm810,000 in its Property Revaluation Reserve. The Bank has revalued its property and this increased the equity attributable to the Bank’s shareholders.
The Bank has 4.2 million shares on issue with a market capitalisation of Lm44,153,800. The current share price at Lm11.75, the highest ever reached, is 2.97 times the net asset value of the share. The results also show that the dividend cover is 4.35 and the gross dividend yield is 1.7%.
The gross dividend proposed by the bank at 20 cents compared to last year at 15 cents is an increase of 33%. As in the previous year the Board of Directors is giving its shareholders the option of receiving the dividend either in cash or by an issue of new shares. If shareholders take up the latter option, they already have the announcement that the Trade Weighted Average Price of the bank’s shares is based on the three months up to and including 28 February 2006.
The attribution price has been set at Lm8.374 per ordinary share bearing a nominal value of 50 cents.
Lombard announced a “two for one” share split (subject to regulatory approval) in mid-December 2005 and since then the share price has moved upwards. The Dividend date and the Annual General Meeting are set for March 2006. This notwithstanding, the return on equity (pre-tax) increased to 24.4%.
The Group had increased its cash at the end of the year to reach Lm65.5 million from Lm54.2 million.
Against a balance of Lm29.5 million in treasury bills and cash with the Central Bank of Malta, Lombard has Lm24 million in commitments. This shows that the bank gives a high regard to its credit quality.
This is a bank that daily does Lm10,000 in profit before tax. One would have expected that Lombard with an increase of 44% in profit before tax would have also been more generous with its shareholders and give a higher dividend even though the declared dividend is 33% more than that of last year. Shareholders appreciate good results. However, they want to enjoy the benefits especially in seeing that the net cash from operating activities increased. There were around 1,300 shareholders as at end 2004 but these results would entice anyone looking for capital growth.
With the improved EPS and the trading price of today, the bank looks more attractive at Price Earnings Ratio of around 21 as against the 28 it was on the eve of announcing its results.
Moreover, the net asset value to the share price is at 3.96 times. The favourable key performance indicators have created demand for the shares, which after the results were announced saw the P/E ratio move from 18 on Wednesday to 21 within three days. The P/E ratio is still low when compared to BOV’s 27.76, HSBC’s at 32.8, before the latter’s bonus issue adjustment which still has to happen.
Bearing in mind that two shareholders between them, have more than 31% of the bank’s shareholding, they will find the bank’s results as appropriate, robust and strong enough for any other larger financial institution to take a closer look at the Bank.
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