EFG Hermes reports strong Q1 2017 profits from continued operations of EGP 236 million
One of the leading MENA financial services corporations, EFG Hermes, has reported strong first quarter results, with net profit after tax and minority interest from continued operations of EGP 236 million.
Total operating revenue reached EGP 825 million in Q1 2017, up from EGP 400 million in the same quarter of last year, an increase of 106 per cent underpinned by a significant improvement in revenues generated from our traditional agency business, our non-bank finance institution (NBFI), which presently includes EFG Hermes Leasing and Tanmeyah Microfinance in Egypt and from treasury operations.
“We are pleased to report a strong start to the year on the back of a continued recovery in regional markets during the first two months of this year,” said Group Chief Executive Officer Karim Awad. “Our revenue growth reflects both the robust health of our traditional agency business and a growing contribution from our non-bank financial institution. During the second quarter of 2017, we will continue to lay the foundation for profitable revenue growth as we begin integrating our newly acquired Pakistan operation into our platform and press ahead with the rollout of our frontier markets, more NBFI products and merchant banking strategies.”
Fee and commission revenues rose 76 per cent Y-o-Y to EGP 466 million in Q1 2017 on higher revenue generated from almost all business lines. Securities Brokerage was the top contributor to revenue growth, as Egypt and Kuwait executions increased significantly Y-o-Y, followed by a higher contribution from the continued ramp-up of our NBFI. Meanwhile, capital markets and treasury operations revenues rose 165 per cent Y-o-Y to EGP 359 million, mainly on higher treasury operations revenue as well as on gains from redemptions of asset management seed capital and the exit of a legacy merchant banking investment.
The Firm remained cautious about its costs despite of the translation impact of overseas salaries following the float of the Egyptian pound late last year; significant inflationary pressure in Egypt; and the addition of new businesses. As a result, the ratio of employee expenses to operating revenues stood at 43 per cent in 1Q17, well below 50 per cent for the thirteenth straight quarter.
The Firm reported a net operating profit of EGP 345 million in Q1 2017 (up 193 per cent Y-o-Y) and a net operating profit margin of 42 per cent, up from 30 per cent a year earlier. This filtered into a Group net profit from continued operations of EGP 236 million in Q1 2017, up 201 per cent Y-o-Y.
EFG Hermes continued to divest its remaining stake in Credit Libanais (CL) post the sale of its majority stake in the bank and its subsequent deconsolidation in the second quarter of last year. In Q1 2017, the Firm offloaded an additional two per cent of CL’s shares, thus leaving it with 13.1 per cent stake at the end of the period.
Accordingly, EFG Hermes reported a net profit from continued and discontinued operations of EGP 359 million in 1Q17 on gains realised from the sale of the additional stake in CL during the quarter.
Key Operational Highlights of Q1 2017
The Securities Brokerage division ranked first in three markets in Q1 2017 including Egypt (40.0 per cent market share), Nasdaq Dubai (57.9 per cent), Abu Dhabi (24.0 per cent) in addition to ranking second in Kuwait (25.5 per cent) and Jordan (22.0 per cent), fourth in Oman (18.8 per cent) and seventh in Dubai (12.8 per cent). Brokerage recorded total executions of $10.3 billion in 1Q17, up 14 per cent Y-o-Y and Q-o-Q as all markets other than Saudi Arabia across the division’s footprint recorded improved liquidity amid mixed performance. Along with our Research Division, Brokerage hosted the annual EFG Hermes One on One Conference in Dubai in March, where more than 510 international investors from 260 institutions with aggregate AuM in excess of $10 trillion held face-to-face meetings with more than 147 companies listed in the Middle East, Africa and Southeast Asia. The One on One followed the hosting of a three-day visit to Cairo in January for global and regional institutional investors with more than $3.5 trillion in AuM for meetings HE the President of Egypt, senior government officials and the leaders of Egyptian corporations.
Investment banking successfully closed one initial public offering in the United Arab Emirates and one M&A transaction in Egypt during the first quarter. The division is also managing an extensive pipeline of potential public offerings and M&As expected to close by year’s end in Egypt and the UAE. In March, the UAE Investment Banking team acted as Joint Global Coordinator for the $105 million IPO of ENBD REIT on the NASDAQ Dubai, which was 1.6x oversubscribed with a positive response from regional investors. In Egypt, the team advised a group of investors including EFG Hermes Private Equity on the sale of 100 per cent of its stake in Sahara North Bahareya to an SPV indirectly controlled by the shareholders of PICO International Petroleum in a transaction worth $79 million.
EFG Hermes Asset Management’s assets under management (AuM) stood at $1.4 billion at the end of Q1 2017. EFG Hermes Egypt based AuMs lost 10.3 per cent Q-o-Q to reach EGP 9.4 billion at the end of Q1 2017. Positive markets performance added five per cent to the AuMs base in Q1 2017, while redemptions withdrew 15 per cent. EFG Hermes Regional based AuMs lost 3.7 per cent Q-o-Q to reach $890 million at the end of Q1 2017, on the back of redemptions seen during the quarter.
Private Equity assets under management at the end of Q1 2017 stood at $1 billion. The division’s Vortex infrastructure platform had AuM of EUR 730 million and a managed capacity of 457 MW at the end of Q1 2017. During the first quarter of this year the Vortex team signed an SPA, jointly with Tenaga Nasional Berhad, to acquire a 365 MW solar PV farm in UK for an EV of GBP 470 million. The transaction closed in May 2017. The UK portfolio will grow Vortex’s AUM to $1.4 billion (822 MW of managed net capacity). Meanwhile, the Rx Healthcare Fund expects to formally announce and start its investor roadshow at the beginning of Q3 2017. Separately, the EFG Capital Partners III fund completed the sale of their stake in Sahara North Bahariya Limited to an SPV indirectly controlled by the shareholders of PICO International Petroleum.
The Research department’s coverage universe grew to 165 companies across the region as of the end of Q1 2017 as the division got off to a fast start through the initiation of coverage of 11 Egyptian small- and mid-cap stocks in a well-received report.
EFG Hermes Leasing stood with a six per cent market share of contracts booked during the first two months of the year, with a total value of EGP 211 million, thus putting EFG Hermes Leasing in a seventh place ranking during the same period (March report yet to be released). Moreover, in addition to penetrating the renewable energy sector through financing programme with Karm Solar, new vendor programmes in the medical, healthcare and transportation sectors are expected to launch during Q2 2017. Finally, EFG Hermes Leasing successfully concluded an EGP 250 million club deal with another player during the first quarter.
Tanmeyah Micro Enterprise Services continues to report solid performance, with growth in active borrowers (+18 per cent Q-o-Q), application processed (+25 per cent Q-o-Q) and loans issued (+18 per cent Q-o-Q). This was the result of higher sales (exceeding initial targets) as funding was secured and as loan-officer deficits reduced; increased productivity was also a factor. Total employees rose 8 per cent Q-o-Q to 1,945 on the back of four new branch openings and new functions and roles required to both support business growth and enhance performance.