Quick review of FY 2015 African banks' results discussed earlier

Dear Readers:

                       Let us take a look at some African banks' earnings discussed some months ago on this blog and their FY 2015 earnings.  This is what investment analysis is all about; a view today of a future financial and operational performance.  

Equity Group Holdings (EGH) Kenya released its FY 2015 result a week ago.  RoE came in at at 24% approximately.  EGH is the best performing bank holding company in Africa from among the core I have reviewed.  EGH was discussed on this blog along with bank holding companies from Nigeria and Mauritius.  It stood out from among the rest and this was sustained in its FY 2015 result.

FCMB and FBN Holdings have already issued profit warnings prior to earnings release.  FCMB acquired Fin Bank and has been erratic in its performance since then. FBN is too big and this was expressed in my article on this blog on FBN.  It is time for FBN holdings to reduce its size and gain.

Stanbic IBTC is dealing with business and non-business issues coupled with a quick and negative turnaround in its business fortunes that is likely to get worse before it gets better.  SBM Holdings Mauritius has had a severe decline in its stock price due to its dwindling performance.  SB traded today at its 52-week low and had a -1.52% decline in price and the highest volume traded on the Stock Exchange of Mauritius. MCB (the largest bank in Mauritius and a key competitor) is trading 316X higher than SBM holdings as at March 15th, 2016.  The Holding company structure has taken the performance of SBMH backward thus far.  FY 2015 result is still being awaited.  

ETI's H1 2015 performance was discussed on this blog and I mentioned that the result was too positive given the reality that the bank is grappling with.  ETI just issued a profit warning (under a new MD) for its FY 2015 earnings yet to be released.  Ecobank Nigeria acquired Oceanic Bank and has had difficulty thus far benefiting from this supposedly beneficial acquisition.   

UBA was also discussed on this blog and I said the bank's performance was good though it needed to deleverage its balance sheet and consolidate its gains across the Africa (ex-Nigeria) continent.  UBA succeeded in deleveraging its balance sheet from approximately 9X as at H1 2015 to 8X as at FY 2015 though, more work still needs to be done.  The bank's branches (ex-Nigeria) have increased their contribution to profit which is now at 24% of FY 2015 PBT.  The bank has achieved the best year-on-year growth in attributable net income of 25% so far among all banks in Nigeria with earnings released.  RoE has increased from 19% in 2014 to 20% in 2015 according to management; I disagree.  I used attributable net income relative to attributable equity.         

Zenith Bank's FY 2015 performance can be seen as a sober reflection in comparison to its performance as at H1 2015; the same can be said for GT Bank.  Both banks did not reflect enough loan loss provisions as at H1 2015 to match the reality of their business environment as at H1 2015 in my opinion based on my analyses.  This was better reflected as at FY 2015 and this tempered both banks' full-year performance relative to their average run-rate as at H1 2015.  

GT Bank's RoE declined by 187 basis points from FY 2014 to FY 2015 while that of UBA declined by 10 basis points.  GT Bank is still the only bank and will likely end up as the only Nigerian bank with a RoE equal to or in excess of 20%.  I mentioned this in an earlier article on this blog.  The two other banks hovering around a RoE of 20%  (UBA & Zenith) have missed the mark with UBA edging Zenith by 21 basis points.  Zenith Bank's RoE declined by 21 basis points year-on-year; though, I expected its RoE to near 20% despite my concerns about its lack of full-disclosure.  The decline reflects that my assertion that its H1 2015 performance could not hold under deeper scrutiny.  Zenith Bank still keeps off-balance sheet items equivalent to 79% of its total assets as at December 31st, 2015.  Shocking, but true.    

In terms of capital appreciation, UBA has the more logical upside.  Historically, it has not been an investor's favorite position to have exposure to for reasons I will not delve into here.  Do not expect a movement like Dangote Cement (though UBA's dividend yield is higher in excess of 400 basis points.)  The patient dog will likely eat the fattest bone as it relates to UBA.  I do not anticipate any quick turnarounds with UBA (gains equal to or more than 30% within the first month of result release.)

Until next time, the research journey continues.