First Inland Bank (FinBank) has maintained a very high Price Earning (P/E) Ratio compared with its peers in the Banking Sector. With many Banking stocks achieving single digit price PE Ratios in the current meltdown that has brought down prices very low.
FinBank has a PE ratio of 34. 1,063,706,886 shares added to the shares outstanding in the name its name on Thursday 07 2009, the Share Capital Base of the Bank now stands at over 11 billion shares, making the bank one of the highest in terms share capital structure.
The additional shares arising from supplementary issue from the recently concluded Public Offer (PO) of the bank has helped up the more the PE Ratio of shares of the Bank.
PE Ratio depicts the length of time it would take to recoup the investment in an equity given the prevailing fundamentals of the stock. For stocks with strong fundamentals, it takes shorter time to recoup the amount of money invested in them.
In the same vein, Earning per Share (EPS) is different from PE Ratio; and to determine the EPS of a stock, you divide the latest declared profit of the company by the Share Capital Base. But to determine equity’s price earning ratio, you divide price of the stock by its EPS.
For FinBank, at its current the EPS of 6 Kobo which a further drop from 11 Kobo achieved in 2008, the PE ratio currently stands at 34, the highest in the industry
By this calculation, it would take as long as 34 years for an investor to recoup his investment in FinBank based on the prevailing price of the stock which has fallen from a record high of over N13.30 last year to N2.04 as end of April.
In its last audited result for the year ended April 30, 2008, the bank posted a Profit after Tax (PAT) of N1.074 billion but could not pay any dividend affirming accounting standards guideline to the effect that shareholders are not to receive dividends until expenses on goodwill was tested for impairment and if impaired written off.
Following this, the Bank wrote off N27.7 billion at it last Annual General Meeting (AGM) held on March 26, 2009 in Sokoto Nigeria. This amount was said to have arisen from the merger of former Inland Bank, First Atlantic Bank, IMB International Bank and NUB International Bank.
It is affirmed that the implication of this write off is a depletion of the bank’s special reserve account which has certainly dropped below the required level, leaving the bank with no choice than to approach the Capital Market again for fresh funds.
This culminated to the last offering of 2008 and supplementary listing of the shares so added. In fact, analysts asserts that barring the offering, FinBank would have gone under in the present meltdown as it shareholders fund had depleted to about N10 billion as against the minimum industry requirement of N25 billion.
However, the bank has some strong points going for it which investors may look up for returns. Having written off the bad debt hanging on its neck like an albatross, chances are that investors may subsequently get good dividend in the coming year.
“But this would depend on expectation of good earnings for the remaining part of the year. But giving the meltdown situation, can the bank demonstrate a significant earning capacity against all odds” Capital Market Analyst queried.
The revenue performance of the financial institution had fallen below expectation in 2008; though Gross Earnings grew just as the Total Assets and contingents rose significantly, from N276 billion to N607 billion. Also, total deposits increased from N131 billion to N320 billion signifying over 250 percent (250%) increase.
With these facts before us, the pertinent question Capital Analyst asks again is whether the results for this financial year would be a substantial improvement over last year’s? Shareholders deserve good returns on investment and management of quoted companies owe the stakeholders a compelling duty to add value to their funds.