Impressive Growth in the First Half of 2021
Profits of KWD 15.1 million and an EPS of 18.9 fils through the income statement in H1 2021
Gains of KWD 7.9 million as other comprehensive income through shareholders’ equity
Total comprehensive income of KWD 23 million
Exceptional hike in the total assets and shareholders’ equity attributable to the parent company to KWD 239.514 million and
KWD 189.218 million respectively
Increase in total income for H1 2021 of KWD 21.99 million as compared to a negative income of KWD 5.8 million during the comparative period.
On Wednesday, August 11, 2021, National Investments Company (NIC) held its H1 2021 Analyst Conference Call. Mr. Girish Nair; CFO, Mr. Sohail Ladha; EVP, Investment Banking and Mr. Almuthana Al Maktoum; EVP, Wealth Management participated in the call. Mr. Almuthana initiated the call by giving a briefing about the Company and an overview of the positive results in the first half of 2021, despite the economic conditions that the country is still experiencing which reflects the success of the Company’s strategy and the expertise of its Executive Team.
Financial Position
Mr. Girish Nair made a detailed presentation of the Company’s financial position, as the Company succeeded in achieving an outstanding high performance on the back of the hike of Kuwait All-Share Index at 15.2% during the first half of 2021.
As regard to the Company’s earnings for the first half of 2021, NIC reported a net profit of KWD 15.1 million, and 18.9 fils earning per share through the income statement, and a gain of KWD 7.9 million as other comprehensive income through shareholders’ equity. The total comprehensive income for the period was KWD 23 million.
During the comparative period of 2020, the Company registered a loss of KWD 11.9 million through the income statement with 14.9 fils loss per share, and the total comprehensive loss for H1 of 2020 was KWD 14.5 million.
Mr. Girish added that NIC’s Return on Average Equity (ROE) and Return on Average Assets (ROA) for H1 2021was 8.3% and 7.4 respectively during the six-month period ended on June30, 2021. The leverage ratio at the end of H1 2021was 0.16:1, and the Company’s quick ratio was 26.8%. The total assets and shareholders’ equity attributable to the parent company increased to KWD 239.5 million and KWD 189.2 million, respectively, as compared to KWD 208.2 million and KWD 159.3 million as on June 30, 2020.
Performance of Income and Expenses
Mr. Girish pointed out that the growth path of NIC performance during the quarterly periods of this year achieved continuous improvement since Q1 2020. NIC managed to achieve a net profit through the income statement of KWD 11.6 million in Q2 2021. The total comprehensive income during this period amounted to KWD 16.05 million.
Talking about income and expenses, and the main drivers of the company’s performance during 2021, Mr. Girish said that the total income amounted to KWD 21.99 million for H1 2021, compared to a negative income of KWD 5.8 million during the same period of 2020.
Mr. Girish said that a major contributor to NIC’s robust total income for H1 2021 was the gain from financial assets at fair value through profit or loss (FVTPL) of KWD 14.79 million. Similarly, a major contributor to the other comprehensive income during H1 2021 was the increase in value of Kuwaiti quoted investments at fair value through other comprehensive income (FVOCI) of KWD 6 million. This exceptional performance is a direct result of the growth in the All-Share Index of Boursa Kuwait by 15.2% during the six months ending on June 30, 2021, where growth reached 4.1% during Q1 2021. The Administrative expenses of KWD 3.66 million for H1 2021 are almost consistent with that for H1 2020.
Mr. Girish also outlined that during the six-month period ended on June 30, 2021, the Management, Brokerage and Advisory fee income recorded a growth of 54% to reach KWD 3.610 million in H1 2021 compared to KWD 2.34 million in the same period of 2020. The main driver for this growth was increased brokerage revenue from a subsidiary company; Al Waseet Financial Business. Funds and client portfolio management fees also increased by 22.2% and advisory fees increased by 63.9%.
Moreover, NIC’s total proprietary assets have registered a growth of 8.2% during H1 2021, from KWD 221.4 million at the end of 2020 to KWD 239.5 million at June 30, 2021, mainly on account of appreciation in value of FVTPL and financial assets at fair value through other comprehensive income (FVOCI).
The Company’s Assets Under Management (AUM) in a fiduciary capacity as on June30, 2021 was KWD 1.1 billion as compared with KWD 1.005 billion as on December 31, 2020, an increase of 6.4%. It has been attributable to the Company’s constant endeavor to provide above average returns to portfolio clients together with capital preservation.
Key Highlights
Mr. Girish said that MENA Quoted Sector successfully capitalized on some opportunities by shifting the tactical allocation of the Company’s funds and client portfolios towards sectors poised for recovery, which contributed to a positive return in H1 2021 for the company’s investment funds and clients.
The Sector developed detailed plans to utilize and benefit from all the new authorized instruments such as netting, margin and market Making. The Company currently will practice the Market Maker service on Boursa Kuwait share with the aim to add new sources of income.
Mr. Girish also said that NIC continues to provide its advisory services, which included the completion of certain flagship deals. The IBS advisory team has completed a financing mandate for a leading fitness and lifestyle business. It is also on the process of listing Al Safat Investment Company. The team also started a strong pipeline of other mandates, including a buy-side transaction for a leading logistics company; one of Kuwait’s largest multi-sector businesses. It is also working on two flagship pre-IPO mandates, expected completion in 2022 and 2023, as well as contracts to provide general advisory services.
Alternative Investments Department has successfully completed two projects with a group of its clients to develop logistic warehouses in Europe, specifically Italy and Germany, whereby the first project, a warehouse located in Italy, was leased to FedEx. The second project in Germany is in its final stages of signing a leasing contract with one of the major companies in the logistics sector. The team is working on a direct venture capital opportunity focused on a leading fin-tech firm. The team is currently exploring an investment in a student housing project in Orlando, Florida, USA and in final stages of due diligence to invest in a leading regional VC platform specializing in delivery. The team currently exited some legacy investments and evaluating other exits.
Mr. Girish also pointed out that the Real Estate Investment Sector at NIC Started a new campaign for developing and improving all the Real Estate assets in portfolios to increase revenue and property values, and rental collection rates during H1, 2021 improved mainly due to businesses beginning to recover from the COVID pandemic.
There is a continuous increase in the collection rate and revenues of real estate portfolios managed for third parties account. The sector has also managed to achieve full occupancy rates in Al Wataniya Resort through a strong marketing campaign.
Deliberate Plans
Mr. Sohail Ladha, Executive Vice President – Investment Banking at National Investments Company, said that the basic elements of the Company’s strategy and the key initiatives it is taking to grow its business and strengthen its competitive position are: building AUM which is working to lead and develop international real estate products with an initial focus on Venture Capital (VC), for example, Boursa Kuwait, Kuwait Foundry and VINCO, in addition to focusing efforts on digital resilience and continue to invest and digitally transform business processes and develop collaborative work environments. An important element of this is business continuity initiatives, utilizing the best available technologies, and also enhancing governance, which is a key strategic reason for the completion of the upgrade to Premier Market status on Boursa Kuwait, showing our commitment for increased transparency and governance. In addition, we have upgraded our risk-management framework to include quantitative and qualitative measures in line with global best practices. Finally: Mid-market leadership in Investment Banking. In order to strengthen our position. NIC has been building its capabilities and developing its track record by executing mandates with the highest quality, focusing on mid-sized clients. 2020 provided us an excellent platform, where we had several flagship transactions. We are also building specialist teams in Equity Capital Markets (ECM), Mergers and Acquisitions (M&A) and Venture Capital (VC), which we have identified as key growth areas.
Case Studies and Capturing Opportunities
Mr. Ladha also presented case studies, which serve as examples of the Company’s ability to identify and execute unique opportunities in the market, including 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. We formed a consortium to acquire a controlling stake of Boursa Kuwait in February 2019. Our 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 5.85 times (based on market values).
Mr. Ladha pointed out that the investment thesis of Kuwait Foundry, which is the second case study, 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, we acquired a 21% stake in January 2019 and have been taking measures to realize value. So far, we have recaptured most of our equity in the transaction already and the total return multiple based on market values is 1.41 times.
The objective of the VINCO Tesco transaction 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.
Last but not least, the investment in a warehouse logistics project in Italy that is leased to FedEx for 15 years is expected to generate annual cash yield of 8% and a net IRR of 9% over an 18 month term.
At the conclusion of the conference call, National Investments Company affirmed that it will be in constant contact with its shareholders and clients to keep them updated on the developments in the Company through the quarterly Analyst Conference.
