As a mutual company for most of its history, Barbados Mutual Life Assurance Society (BMLAS), the precursor company to Sagicor, would have consistently paid dividends to its policyholders. In addition, they would have met the normal expectations of policyholders for prompt claims settlements and related services. Under that arrangement, policyholders were in the unique position of being both valued customers and part owners of the entity. In 2002, BMLAS made the bold move to demutualise and became a shareholder-owned company, adopting the name Sagicor Financial Corporation. Existing policyholders were issued 175 million new shares and an initial public offering (IPO) was made on both the Barbados and T&T Stock Exchanges for an additional 85 million new shares. Shareholders, with an appetite for both regular dividends and capital appreciation, now became a new constituent class with which the company had to contend.
Following the IPO price of $5.60 in December 2002, Sagicor’s share price has risen to as high as $21.99, which was reached on June 25, 2008, and was recently traded at $7.50. Other relevant statistics are shown on the table. In a private placement in December 2009, the company issued 11.8 million new shares to National Insurance Board of Barbados at a price of US$1.663 per share. Following this, in 2011, an additional US$135.7 million was raised via new preference and common shares to the International Finance Corporation and some regional and local investors, which accounts for the big jump in shareholders’ equity in 2011 over the 2010 figure. Over the nine-year period as a public entity, the company’s assets have grown almost four-fold to reach US$5.36 billion as at the end of 2011. Much of this growth was fuelled by a combination of acquisitions and organic growth. The decline in shareholders’ equity from $455.20 million in 2007 to $447.8 million in 2008 was due largely to the movement in reserves from $21.7 million in 2007 to a negative $85.2 million in 2008. This negative change comprised three main figures: net losses on revaluation of $55.3 million, gain transferred to income on disposal of $14.6 million and retranslation of foreign operations of $42.1 million. As at the end of 2011, this item returned to a positive figure of $20.865 million. After climbing relentlessly from 2003-2008, earnings per share slipped dramatically from 34.6 cents in 2008 to less than 24 cents in 2009, and further contracted to a mere 5.7 cents in 2010, the year described by its chairman as the seventh worst year for the property and casualty industry since 1970.
Shareholders’ income eroded
In 2011, the losses of US$33.4 million incurred by Sagicor at Lloyds eroded shareholders’ income by a massive 97 per cent. This left shareholders with a nominal US$1 million or 0.2 cents per share. Over this period, the company has had three different chairmen, Colin Goddard, a Barbadian, Terrence A Martins from Trinidad, and currently, Stephen Mc Namara, a St Lucian/Irish national. These individuals reflect the Caribbean character of the organisation. It is interesting to note that although Sagicor is registered in Barbados, the majority of its shareholders are Trinidadians or Trinidad-based entities. As at the end of 2010, such entities held shares amounting to 47.53 per cent of the 291,341,344 outstanding shares in the company, while Barbados-based individuals and entities held 35.40 per cent of the outstanding shares. New investments in 2011 by the United States-based International Finance Corporation could perhaps further weaken the Barbados position.Amidst the company’s relentless growth in its asset base, how have investors fared? We can perhaps look at three different hypothetical groups of investors:
(1) original BMLAS policyholders
(2) original IPO investors, who have never sold or bought any more shares, and
(3) finally, latecomers, who have bought shares at varying prices over this nine-year period
Share price appreciation
The first group of original policyholders would have received shares based on a formula using the size of their policies and the number of years which it was in force, among other factors. Because these shareholders did not make any direct outlay of funds to acquire these shares, many have a tendency to regard these shares as being “free.” Depending on their age, these shareholders would have a predisposition to sell some of their holdings whenever a need for cash arises. A few would have been fortunate to sell some of their shares at the relatively high prices prevailing in mid-June 2008. The relative indifference of this group to getting a good price at a particular time helps make this share more volatile than it otherwise might be under normal trading conditions. For the IPO group, who basically bought some shares and continue to hold them up to the present time, they have seen a 34 per cent appreciation (or $1.90) in the share price from the original $5.60 to the current $7.50. At the same time, they would have received total dividends of $2.74 per share over their holding period (inclusive of the dividend that is being paid in May 2012). Using the current price of $7.50 and dividend payment of $0.25, the share gives new investors a yield of 3.33 per cent; this is generally much higher than what many income funds currently pay to investors.
Latecomers who have bought shares at varying prices over this period may, in fact, have a relatively high average cost, some even in excess of $12.00 per share. In the current environment and pending the release of Sagicor’s first quarter results, they may consider that the existing price of $7.50 represents an opportunity for them to buy additional shares and so help lower their average cost. Of course, this assumes that the investor is confident about the company’s future prospects and that the setbacks of the last three years are not likely to be repeated in the near future. In addition to its strong asset base and its sturdy equity position, Sagicor is one of the few companies, if not the only company, that lists the skills and experiences of its directors in its annual report. If we believe that it has learnt valuable lessons from the significant events of the past few years, then it now seems likely that the company is well poised to resume its upward path in profitability, dividend increases and positive price movements—all of which would also be beneficial to its policyholders.