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Liberty Kenya Holdings Ltd Unaudited Half Year Results 30 June 2016

Liberty Holdings 1H16 EPS down 10.7%y/y to KES 0.64
On restated numbers, Liberty Holdings announced 1H16 results posting a 10.7%y/y drop in EPS to KES 0.64 - second worst bottom line performance after Sanlam Kenya(rebranded from Pan Africa) which posted a 1H16 loss per share of KES 0.89. With PBT down 4.3%y/y, the decline in EPS was as a result of reversion of tax rate to 30% from 20% following lapse of a 5 year break offered as an incentive for listing.
Guided by profit attributable to minority interest, the Tanzania subsidiary (Heritage is a short term insurer which contributed 37.3% of gross earned premiums in 2014) recorded poor performance with PAT down 68.4%y/y to KES 27m-third straight year of a decline in profitability. Despite Heritage being the third largest short term insurer in Tanzania, the company has consistently been losing market share from 13.1% in 2010 to 8.4% in 2014.
Gross earned premium grew 11.6%y/y- highest growth since 2012. Of the listed companies, Liberty posted the second highest growth in gross earned premiums after Jubilee (+12.7%y/y), which also got 37.4% of premiums from regional subsidiaries in 2015. Liberty recorded a marked increase in market share in CY15, in Kenya, with general business share rising to 4.7% from 4% in CY14 and life business improving to 8.5% from 5.6% in CY14. We believe increased market share was helped by a deliberate change in management strategy in focusing on increasing retail sales volumes by growing its distribution capacity. Liberty however lost market share in 1Q16 in life business to 6.0% while general business stood at 4.6%.Investment income was up 56%y/y to 31.8% of total income (+16.8%y/y) from 23.8% in 1H15.
Net claims and benefits were up 36.9%y/y to account for 44.9% of total income compared to 38.3% in 1H15 and 39.1% in 1H14.
Commission payable declined 9.5%y/y with acquisition ratio coming in lower at 20.3% from 24.7% in 1H15. Operating expenses grew 14.2%y/y to account for 54.4% of net earned premiums from 52.4% (above industry average of 35.8%). Down 21.3% YTD, Liberty Insurance has underperformed the NASI (-11% YTD). (Company filing, Standard Investment Bank)

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