Company: Wema Bank Plc
Rating: Buy
Current Market Price: N0.63
Year High: N1.54
Year Low: N0.50
Fair Value: N2.07
By: Jeariogbe Tunde Segun (Equity Analyst)
Key Financial Ratios
• This report observes the nine-month financial performance of Wema Bank Plc for the period ended September 30, 2018, as against figures for similar period of 2017.
• Note that Retained Earnings is now positive at N7.544 billion, thereby further increasing investors’ hope to receive some returns on their investment at the end of the ongoing financial year.
• We also note the positive top and bottom lines as contained in the financials for the period under review.
Company Figures
• Gross earnings for the period improved by a marginal 7.51% to N43.498 billion, from the N45.565 billion 2017Q3 level.
• Interest Income stood 3.77% above the 2017 figure, with current Interest Income at N38.888 billion, as against the N37.473 billion posted in 2017.
• Meanwhile, Interest Expenses dropped by 8.64%, after rising from the previous N25.242 billion to N23.061 billion.
• Profit before Tax soared 69.87% above the N1.799 of 2017, to N3.056 billion.
• After considering other costs, including tax expense, N2.644 billion was reported as Profit for the period, which was 78.88% above the N1.529 billion reported in the corresponding quarter in 2017.
• Total comprehensive income improved by 74.09%, after moving to N2.662 billion from N1.529 billion in the previous third quarter.
• Total Assets stood at N480.771 billion, same as 21.88% above the N394.459 billion estimated at the end of 2017 third quarter financial performance.
• Total Liabilities rose to N428.789 billion, 24.48% above the N344.459 billion reported in corresponding quarter of 2017.
• Total Deposit through the nine months increased to N374.778 billion, which is 27.17%% above the N294.702 billion achieved in the first nine months of 2017.
• Meanwhile, unlike other financial institutions, Loans and Advances improved QoQ by 16.09%. According to the report a total of N244.790 billion was given out as loans and advances through the period this is above the N210.866 billion of 2017
• Net Assets achieved marginal 3.96% growth, when compared to the reported figure in similar period of 2017.
• See the table below for details.
Volatility Ratios
• Going by the estimated Beta value of Wema Bank Plc, the shares are currently enjoying increased patronage which currently runs a beta value higher than unity and above industry average.
• Although almost irrelevant, since this analysis is of a financial institution whose major business is to collect deposit (mostly reported under liability), we estimate Debt-Equity ratio at 53.57% below the industry average of 64.44%.
Profitability Ratios
• Interest Expense to Gross Earnings is presently estimated at 47.08%, which is 15.02% below the 55.40% estimated in 2017 nine-month financial statistics.
• PBT margin stood at 6.24%, as against the 3.95% in the prior nine months, representing a 58.01% improvement
• In our opinion, Profit Margin is poor when compared to other financial institutions’ estimates. We have estimated 5.40% margin from Gross Earnings as against the previous estimate of 3.36%
• Return on Average Equity is now 5.09%, compared to the 3.06% returns achieved in the first nine months of 2017
• Return on Average Assets only differs by 41.85%%, moving from 0.39% to 0.55%.
Efficiency Ratio
• Gross Earnings to Total Assets is estimated at 10.19%, which is 11.79% below the 2017 estimate.
• Meanwhile, Gross Earnings to Equity is now 92.24%, as against the 91.13% estimated from the 2017 nine months financials
• Financial Leverage, an estimate of the number of times Total Assets replicates the bank’s equity stood at 9.25x, as against 7.89x. In other words, the ratio is getting better.
• It was also established that 63.52% of the Total Deposit was given out as Loan and Advances during the period under review, which is 8.72% lower than the 71.55% reported during the first nine months of 2017.
• Meanwhile, Loan and Advances is same as 50.92% of the Total Assets, or 4.75% lower than the 53.46% of last nine months financial activities.
Investment Ratios
• The estimated amount earned per unit of Wema Bank is N0.07, this is 72.88% above the N0.04 earned in 2017Q3 business period.
• The said earnings per share yielded 11.42% of the current market price on the day the result was made available to the investing public. This is a better yield when compared to the 7.93% achieved the last Q3.
• P/E Ratio for the period is 2.92x, as against 4.20x estimated in prior nine months.
• The Book Value of Wema Bank is N1.35, fairly same as N1.30 last year. Should we choose to value this equity with this indices, we can conclude an underpriced position of each units of its shares on the floor of the exchange
• Further confirming the underpriced state of Wema Bank Shares is the Price to Book Value ratio that stood below unity.
• Opex Margin rose by 15.31%, having moved to 41.73% from 36.19%
Valuation
Through our blend of valuation models and fully considering the non-dividend payment status of the financial institution over the period, we have valued each units of Wema Bank Plc at N2.07. Thus, considering the current market price of N0.63 (as at the time this report was concluded), we Rate Wema Bank shares a Buy.
