MFS are enjoying a good year so far. At half year, they have posted impressive results in a market that was starved of liquidity until this year’s deliberate actions by the central bank. However, for financial services companies, they can often be a barometer of the prevailing economic environment. For example, a closer look at their interim income statement shows that impairments were notable higher in 2017 compared to the previous year. The 48% increase in impairments can be attributed to the market conditions that prevailed that forced many clients to default due to high interest rates. In addition, cheap money in the economy was scarce hence the higher finance costs that have been recorded at half year.
Although three things stood out on the income statement (Impairment loss, interest and other finance costs, and income tax expense), revenue was up by 8%. Operating results for the half year period recorded a 26% growth over the results for the same period last year. In the board’s SENS announcement published on LuSE on 24 August 2017, they believe that “this is an indication of a continued successful recovery which combined with other factors may lead to impressive profit growth to the end of the year.” They further identified two areas where value growth was achieved:
- Higher unearned premium reserves – K87.546 million being 14% over the K76.594 million for June 2016; and
- long-term insurance funds at K186.053 million have grown by 23%. Some projects under construction have neared completion and sales are expected to trickle in.
The firms balance sheet confirms their appetite for long term assets (non-current assets) increased by 36%. In terms of liquidity, they are able to cover all short term obligations two times over. Evidence of improved cash is also found in their cash flow statement which shows that net cash generated from operating activities increased by 5 times.
The group is now taking advantage of an opportunity that has arisen on the back of foreign equity investors cashing on their investments. This often happens when a venture capital or private equity firm invests and they would like to exit the deal once they have realized their return on investment. This can either be a set internal rate of return or a specific payback period. With the investment horizon near, the group will increase its stake in the firm from 50% to 100%. Judging by the critical time line we draw of how the Madison group grows itself, we would not be surprised if there is another investor in the horizon that will take the group to new heights.