Losses totaling N5 billion are expected in Custodian Investment Plc at the end of the second quarter, slashing the impressive N10.7 billion profit it recorded in the first quarter to N5.7 billion at the half-year, according to its forecast.
The company’s earnings projection for the half year that ended in June 2024 had foreseen challenges coming from the revenue slowdown and an upsurge in cost.
Gross earnings are forecast to drop from N40.7 billion in the first quarter to N21.6 billion in the second, adding up to the N62.3 billion target the company’s management set for the half year.
On the other hand, total operating expenses, led by insurance service cost, will make a marginal decrease from N28.7 billion in the first quarter to N25.9 billion in the second, adding up to the company’s forecast figure of N54.6 billion in the half-year.
The expected drop of almost 47 per cent in revenue quarter-on-quarter against a decrease of less than 10 per cent in cost, as projected over the period, constituted the loss creating room for the investment holding company in the second quarter.
Insurance service and reinsurance expenses constituted the pressure point from the side of costs, accounting for more than 73 per cent of the total expenses of N28.7 billion the company incurred in the first quarter.
This made the underwriting business; the weakest point in the company’s cost-income balance this year.
The company’s first quarter interim result at the end of March 2024 shows that insurance service expenses grew by over 78 per cent year-on-year to N12 billion and net reinsurance expenses rose by 32 per cent to almost N9 billion over the same period.
The cost increases dwarf significantly, the increase of 37.8 per cent in insurance service revenue to N28.3 billion, permitting only a moderate increase of 5.4 per cent in insurance service results to N7.2 billion at the end of the first quarter.
The cost-income imbalance of the underwriting business is expected to worsen in the second quarter, according to the forecast which has projected the underwriting business to be the main driver of the over 88 per cent upsurge in operating expenses (excluding management cost) from N24.8 billion in the first quarter to N46.7 billion target at the half-year.
Notwithstanding the weak growth in insurance service results, the company multiplied after-tax profit more than five times to N10.7 billion at the end of the first quarter.
The spur for the bottom line came from investment income – led by the major slashing of net fair value losses and also, a rebound in finance income.
Investment results swelled from about N578 million in the same period last year to over N7 billion at the end of the first quarter.
The big boost came from a drop of more than one-half in net fair value losses to N3 billion year-on-year and also, an increase in interest income by over one-half to N6.8 billion over the same period.
Operating and investment earnings also grew by 34 per cent to almost N3 billion within the period. The strong performance by the investing operations was reinforced by finance incomes from insurance and reinsurance contracts that rebounded from negatives to add up to net finance income of N2.6 billion against net finance expense of N1.2 billion in the same quarter in 2024.
The impressive earnings from investing and financing operations of the company made up for the slackened performance of the underwriting business in the first quarter and they accounted for a leap of 181.6 per cent in net income to over N16 billion at the end of the quarter.
Pre-tax profit swelled more than four and half times, to nearly N12 billion at the end of the first quarter, while the after-tax profit jumped well over five times to N10.7 billion in the period.
Custodian Investment earned N1.80 per share at the end of the first quarter of operations in March 2024, rising from 34 kobo per share in the same period in 2023.
