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Investors identify why Afribank Shares is worth the price

Category: Public Offers Private Placements

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Investors identify why Afribank Shares is worth the price

November 18, 2007



Investors all over the country are taking advantage of Afribank Nigeria Plc’s deliberate interest of making its shares available to a broad based segment of the society.


Enquiries from stock broking firms and investor groups revealed that the interest in the banks shares at N25 per share stems from the impressive half year results released by the bank just before the offer broke.


Afribank Plc, who in around the same period in 2004, went shopping for N17 billion from the capital market with a forecast profit before tax of N8.4 billion at the end of the 2007 financial year, in a period where before the banking consolidation, delivered N7.3 billion.


The share then was on offer at N6.80k. When compared to today’s price of N25.00k, it simply shows how far the Afribank stock has come.


The stock has had its own fair of challenges, with the stock


A review of the daily price movement of Afribank\'s stock from November 4, 2004 through August 17, 2007 reveals a gain of N30.26k or 456% during this period. 


It should be noted that a significant portion of the gains occurred after the lifting of the 9.6 months technical suspension in July 2007 by the NSE.


For example, from July 11, 2007 through August 17, 2007, the stock gained N25.38k, or 220.5% based on the pre-adjusted 1 for 5 bonus price of N36.89 as shown in the graph below.


Enquiries by us revealed that the stock was suspended from trading by the NSE after the bank notified the NSE in May 2006 of its intent to raise N50 billion from the capital markets through a secondary public offering.


Management, upon enquiry, confirmed that the technical suspension was prolonged by the action of another bank, Access Bank Plc, which launched a hostile take-over bid of the bank during this period. The take-over bid was successfully rebuffed by the bank.


It is noteworthy to emphasize that the stock price was not suspended at this time because of the ride-on effect of the take-over bid. Rather, the take-over bid only facilitated the extension of the price freeze and since the bank could not proceed with the offer until the take-over issue was resolved, the bank, we learnt, was compelled to produce fresh financial results to approach the capital Market since its FYE of March 2007 was fast approaching.


After the March 2007 financial year-end, the Bank then decided that the earlier application for N50 billion was no longer adequate, given the passage of time.


An application for a N100 billion offering was therefore made based on current market realities and the internal plans designed to deliver its 5-year strategic plan. Thus, the earlier application was vacated and soon after, the price freeze was lifted.


As a mark of investors confidence in the stock, it gained 220.5% between July 11, 2007 and August 17, 2007.


This was a significant leap which could only have been because of the pent up desire by investors to cash-in on the changes that were beginning to manifest in terms of increased profitability and marked market acceptance and expectation for higher yields/returns on investment.


The stepped up demand for the Bank’s stocks following the reported 76% growth in gross earnings for the FYE March 2007 relative to FYE March 2006 further added steam to the drive that led to an increase in its stock price.


Looking back now at the half year returns where the bank exceeded FYE September 2006 figures by 102% with a gross earnings of N19.5 billion , it appears obvious that the trend set by the bank, reportedly driven by the management team led by Sebastian Adigwe who achieved a similar feat at IMB, is definitely on the way at afribank and astute investors had latched unto that.


The heightened expectation that is driving the current offer by Afribank appears well informed and the management definitely has its work cut out for it – it has never failed on meeting its target and forecast to date.


Investors believe this is its strongest attraction.

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