National Investments Company holds full year 2020 financial results first Analyst Conference Call
NIC reports a gain of KWD 3.8 million through other comprehensive income, and a Net loss of KWD 2.7 million through the income statement
NIC has a strong and consistent history of dividend payouts for the past 5 years with an annualized dividend growth rate of 22% during this period.
Distribution of cash dividends, the largest in the past ten years, of 11 Fils per share for 2020
Robust rebound in the second half of 2020, with KWD 15.6 million total comprehensive income
Hike in Earnings Per Share for the third and fourth quarters of 2020
NIC’s total proprietary assets witnessed a growth of 3% to KWD 221 million at the end of 2020
Increase in the size of managed real estate portfolio by adding 17 new properties and adding new clients to the list.
Definite case studies serve as examples of NIC’s ability to identify and execute unique opportunities in the market.
On Tuesday, March 30, 2021, National Investments Company (NIC) held its first Analyst conference call upon its upgrade to the Premier Market. Mr. Girish Nair, CFO, Mr. Sohail Ladha, EVP, Investment Banking and Mr. Almuthana Al Maktoum, EVP, Wealth Management participated in the call. Mr. Almuthana began the call by giving a glance about the Company and an overview of the key events the world witnessed in 2020, which reflects the success of the strategy adopted by the Board of Directors and implemented by an experienced executive team.
Mr. Girish Nair presented a detailed explanation of the Company’s financial position and performance in 2020 and the impact of the events arising from the outbreak of Covid-19 pandemic on the financial statements. Amidst the ensuing Covid-19 pandemic, NIC reported a Net loss of KWD 2.7 million through the income statement and a gain of KWD 3.8 million as other comprehensive income through Shareholders equity for the 12 months ended 31 December 2020. The total comprehensive income for the year was KWD 1.1 million. During the comparative period of 2019, the Company had reported a profit of KWD 10.7 million through income statement and a loss of KWD 1.1 million through Other Comprehensive Income (OCI). The Total Comprehensive Income (TCI) for 2019 was KWD 9.6 million. The Total Comprehensive Income for the year ended 31 December 2020 declined by 89% as compared to that for the previous year ended 31 December 2019.
Mr. Girish added that NIC witnessed a strong recovery during the second half of 2020, as the Company recorded a total Net profit of KWD 9.2 million through the income statement and a gain of KWD 6.4 million through the OCI i.e. a Total Comprehensive Income of KWD 15.6 million.
Mr. Girish further pointed out that 2020 results included full year’s consolidation of results from two of NIC subsidiaries, namely Al-Waseet Financial Business Co., upon acquiring control resulting from acquisition of additional stake in October 2019 and that of Mena Capital Holding Co.’s results due to increase in holding from 46.6% to 56.6% in August 2019.
Mr. Girish said that after reporting a loss per share of 13.71 fils during the first quarter of 2020 and 1.16 fils per share during the second quarter of 2020, the EPS for the third and fourth quarters recovered to 4.98 fils per share and 6.57 fils per share respectively. The total Loss per Share (LPS) for all the four quarters of 2020 was 3.33 fils. In line with the Company’s commitment to deliver consistent and superior returns to its shareholders, the Board of Directors have recommended the distribution of 11 fils per share for the year ended 31 December 2020 out of Retained Earnings and partly out of Voluntary Reserves, subject to approval of the General Assembly and other regulatory authorities.
Successive Gains and Dividend Payouts
Mr. Girish said that, NIC has a strong and consistent history of dividend payouts for the past five years with an annualized dividend growth rate of 22% during this period. NIC has paid out dividends ranging from 5 fils per share in 2016 to 11 fils per share proposed for 2020. NIC’s dividend yield for the past five years increased from 5.3% in 2016 to 8.1% in 2020, which is higher than the average for the broad market and more specifically the financial sector. NIC’s total proprietary assets witnessed a growth of 3% during 2020, hiking from KWD 215 million at the end of 2019 to KWD 221 million at the end of 2020, mainly on account of increased investments in Fair Value Through Profit or Loss portfolio. The Company’s exposure to Non-MENA countries assets have increased in line with its strategy to geographically diversify its asset base.
Key Financial Ratios
Mr. Girish said that NIC’s Return on Average Assets (ROA) and Return on Average Equity (ROE) for 2020 have declined to about 1% and 1.5% respectively owing to the challenges resulting from Covid-19 pandemic. The ratios for the year 2019 were 5.4% and 6% respectively. This needs to be viewed against the backdrop of a net market decline of 11.7% during 2020 in Kuwait All share index.
A low Leverage Ratio of 0.16:1 as against an upper limit of 2:1 prescribed by CBK and a Debt equity ratio of 10.2% indicates there is room for further leveraging. A Quick Ratio ranging from 40.3% to 77.6% during the past three years using the stringent CBK prescribed formula demonstrates NIC’s ability to meet its current liabilities on time. The minimum ratio laid down by CBK is 10%. NIC also has a strong capital base and is adequately capitalized, with a Capital Adequacy Ratio of around 1.8 times the required regulatory capital in accordance with the Kuwait Capital Markets Authority regulation for all licensed persons including non-banking financial sector companies.
NIC Financial Performance
NIC’s Financial Performance for 2020 was uplifted in value of key direct investments (especially Boursa Kuwait) and resilience of its Assets Under Management, despite there being a decline in overall market. NIC has Assets under management (AUM) in a fiduciary capacity of over KWD 1 billion. The AUM demonstrated a lot of resilience and suffered a decline of only 3% from KWD 1.033 billion as on 31 Dec 2019 to KWD 1.005 billion as on 31 December 2020, despite 2020 being a challenging year.
Mr. Girish referred that another contributory to NIC’s performance during 2020 was the growth in its fee income (coming from various sources). Total management, incentive, brokerage and advisory fee income grew to KWD 6.2 Million as compared to KWD 4.5 million in 2019.
Mr. Girish pointed out that the main increase was on account of full 12 month’s consolidation of brokerage revenue amounting to KWD 2.5 Million from NIC’s subsidiary, Al Waseet Financial Business Co., a leading brokerage company in Kuwait as compared to 2 month’s revenue amounting to KWD 0.4 million, consolidated during 2019. Advisory fee earned from various engagements also witnessed an increase from KWD 140 thousand in 2019 to KWD 0.9 million in 2020. The performance during 2020 was good despite taking considerable write-downs on our existing assets.
Key Highlights in 2020
Mr. Sohail Ladha, Executive Vice President – Investment Banking at National Investments Company, said that MENA Quoted Sector seized certain opportunities in deploying proprietary capital, which supported out-performance when the market rebounded from its lows in Q1 2020. The Sector was also at the forefront of trades involving the MSCI upgrade to support several clients in strategically disposing their positions, and responded to several major RFPs from sovereign and quasi-sovereign institutions, expecting a favorable outcome during 2021. Moreover, the sector is in the process of launching Market Maker function, aiming to add a new source of revenue. The Sector has developed comprehensive databases, in-house analytical systems, and a team of expert analysts to provide strategic insights and timely recommendations on all aspects of the local and regional markets
Mr. Ladha, said NIC restarted its Advisory practice in 2019. Despite a difficult 2020, NIC established its as a key player, with a total Advisory fee income of KWD 0.9 million, and included a few of the flagship deals achieved during 2020. The Advisory Team provided a leading performance, including acting as a sale advisory for the sale of a leading foods company, and succeeded in listing of Boursa Kuwait on the Premier Market. It also acted as a buy-side advisor to Boursa Kuwait assisting it in acquiring a controlling stake in Kuwait Clearing Company. NIC has developed a strong pipeline for 2021, including 2 IPO mandates, 4 Mergers & Acquisitions buy-side mandates, 4 sell-side mandates, 1 restructuring and 2 general advisory engagements. Furthermore, the Alternatives Investments Department opportunistically invested in global REITs (Real Estate Investment trusts) in May 2020, generating a 42% in a period of less than a month. NIC continued to increase its stakes in key strategic investments in Financial Services and Real Estate including Al Oula Real Estate Co. and MENA Capital Holding Co. NIC made five new investments in funds (including VC, infrastructure and credit funds) which are expected to deliver blended returns of more than 15% per year.
Mr. Ladha pointed out that despite the challenges posed by Covid-19, the Real Estate Sector within NIC was able to increase the size of managed real estate portfolio by adding 17 new properties to the 67 existing ones and adding 2 clients to the existing client list. The Sector was also able to reduce Operating Expenses of properties by 17% through reevaluation of maintenance contracts. Though however rental income and collections were slightly reduced due to Covid-19 circumstances, and discounts were granted to support tenants in some buildings to support them during the pandemic.
Concerning the market overall performance, and the measures taken by NIC to cope with the challenges posted by Covid-19 pandemic, and its strategic look-forward plans, Mr. Ladha said that Boursa Kuwait posted a negative performance in 2020. The All Share Index was down by 11.7% for the year. This was after a strong performance in 2019, when the Index had increased by 23.7%. An important milestone event in 2020 was the inclusion of Boursa Kuwait to the MSCI Emerging Market Index. The stock market witnessed an inflow of approximately KWD 1 billion on the inclusion day of 30 November 2020.
Regarding the challenges, the imposed lock-downs and curfews posed a major challenge and therefore, NIC had to re-assess its investments due to the correction in regional stock markets and asset values at the global front. Also, some of the tenants in the real estate portfolio suffered adverse business conditions which resulted in the delay of rent collections.
Finally, the weak investor sentiment made it increasingly challenging to attract assets under management. However, in spite of the challenges, NIC reacted positively and pro-actively and implemented measures to safe-guard its business and capitalize on opportunities. NIC responded early to the crisis by activating the digital work-place environment, enabling the company to continue its operations uninterrupted. Moreover, NIC increased client touchpoints through new features and web-based facilities, including WhatsApp for business. The Company also put in place procedures to conduct client on-boarding and KYC digitally. NIC also took the opportunity to upgrade its systems, IT infrastructure and digitization. Additionally, NIC worked proactively with portfolio companies and relationships to ensure proper actions were taken to preserve values. The Company also actively sought opportunities arising from the market dislocation; an example of this is the Global REITs portfolio, and took aggressive write-downs where appropriate to reflect financial exposures.
Mr. Ladha pointed out that the impact of these measures has generally been positive. The enhancement to the Company’s mobility and virtualization has provided a one-time dividend to its productivity and sustainability. NIC international real estate products have continued to maintain dividends to investors. Moreover, the Company’s core investments continued to increase in value through strong organic growth that can be achieved through increasing production and boosting sales, in addition to expanding customer base and introducing new products and services, such as Boursa Kuwait, Al Waseet Brokerage and Kuwait Foundry. NIC also embarked on numerous opportunities to capture market share as evidenced by the growth in its fee income and its assets under management. NIC also captured market share of the international brokerage market. The Company’s opportunistic investments during the year delivered considerable risk-adjusted returns. An example of this is its REITs portfolio.
Mr. Ladha also talked about NIC’s strategy and the key initiatives it is taking to grow its business and strengthen its competitive position. The key elements of the Company’s strategy include:
- Building Assets Under Management (AUM). NIC’s management is working on four key initiatives; which are driving product development in an organized manner, with an initial focus on Venture Capital (VC) and international real estate products, in addition to building a reputation to bring excellent co-investment opportunities for investors.
- Enabling Technologies and Efficiencies. In this aspect, NIC is focusing its efforts on digital resilience as the Company is continuing to invest and digitally transform its business processes and develops collaborative work environments. An important element of this is business continuity initiatives, utilizing the best available technologies, and focusing on harnessing operating efficiencies by outsourcing processes and working with co-advisors to leverage their capabilities, knowledge and expertise.
- Enhancing Governance, where the Company has upgraded to Premier Market status on Boursa Kuwait, showing its commitment for increased transparency and governance. In addition, the Company upgraded its risk-management framework to include quantitative and qualitative measures in line with global best practices.
- Mid-market leadership in Investment Banking in order to strengthen the Company’s position, where it has been building capabilities and developing track record by executing mandates with the highest quality, focusing on mid-sized clients.
Moreover, 2020 provided an excellent platform, where the Company had several flagship transactions, and is also building specialist teams in Equity Capital Markets (ECM), Mergers and Acquisitions (M&A) and Venture Capital (VC), which the Company has identified as key growth areas.
Case Studies and Capturing Unique Opportunities
Mr. Ladha also presented several case studies, which serve as evidenced examples of the Company’s ability to identify and execute unique opportunities in the market. The first case study is Boursa Kuwait. The investment thesis here was to acquire a strategically important asset with strong, recurring and sustainable cash flows due to its market leadership position and improving prospects. NIC formed a consortium to acquire a controlling stake of Boursa Kuwait in February 2019. The Company’s direct stake was 14.4%. Since acquisition, Boursa Kuwait has undergone through an IPO and listing process. The market price today is several multiples of our acquisition cost. To date, the investment has generated a total return multiple of 4.98 times (based on market values).
Mr. Ladha talked about the second case study which is Kuwait Foundry where the investment thesis here was the acquisition of a mispriced asset with intrinsic value significantly greater than the prevailing market value. The investment offered an identifiable path to realization of true value. Towards this, NIC acquired a 20% stake in January 2019 and has been taking measures to realize value. So far, the Company has recaptured most of its equity in the transaction already and the total return multiple based on market values is 1.18 times.
The objective of Tesco transaction, which is one of the giant and long-standing UK companies specializing in the retail sector, was to deliver attractive cash yields to our investors by acquiring real estate properties tenanted by credit-worthy tenants. The transaction has delivered consistent dividends, while appreciating in value.
In the future, NIC will continue to be optimistic in general about the growth of the Kuwaiti economy, and the goal is also to capture continuous growth during the current year.