January 09, 2008 580 VIEWS
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Oceanic Bank's recent Q1 results show a 140.4% surge in gross earnings while PAT increased by c. 153%. Details of the result (as at December 07) indicate a 140.4% (YoY) growth in gross earnings to N31.1bn. Similarly, profit before tax (PBT) increased by 160% to N10.9bn while profit after tax (PAT) increased by 152.8% to N8.8bn. As a result, Q1 earnings per share (adjusted) rose to N0.40 compared with N0.30 recorded in Dec.06. Also, pre-tax and post-tax profit margins improved to 35% (06: 32.4%) and 28.4% (06: 27%) respectively.

 

Triple digit growth rate renews hope for improved return on average equity... Following the conclusion of Oceanic's public offer in Apr.07, the sharp increase in capital base to N222.8bn (06: N37.6bn) raised concerns on how value could be created for shareholders. In view of the current run rate, however, we estimate the bank's FY08 return on average equity to be 18.4% from 13.5% in FY07 as result of the strong growth rates recorded so far, which we expect will continue into subsequent quarters.

 

However, per share data is substantially diluted by the creation of 10.5bn additional shares. As a result of the public offer, additional 10.5bn ordinary shares of the bank have been listed at the NSE which increased the bank's shares outstanding to c. 22.22bn – highest in the Nigerian banking sector. Consequently, book value per share is expected to decline to N10.70 (FY06: N19.13) while earnings per share is expected to grow by 27% to N1.91.

 

Expectations drive Oceanic Bank's valuation. Based on our evaluation of the bank's current operations, we estimate full year gross earnings and PAT of N175.8bn and N42.5bn respectively. In our opinion, Oceanic is fairly priced at its current price of N35.11/share.

 
 
 
The stock currently trades at 18.4x its 2008 earnings and 3.3x its 2008 book value. These valuations represent a discount to fair value given that the top 7 Nigerian banks are trading at an average P/E of 22.2x 2008e earnings and 3.2x 2008 book value.  - UGM
 
 

See the equity report note at http://www.proshareng.com/blog/?attachment_id=321

 

 
 
Tola Odukoya | Investment Research | UBA Global Markets | Lagos, Nigeria
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