• Loan Loss Provision Rises To N431.43bn Since 2013
The board of Ecobank Transnational Incorporated (ETI) filed its financial for the period ended December 31, 2016 late to the investing public, compared to the date for 2015. The numbers were nonetheless disturbing, but mixed and weak, with gross earnings managing to rise, while bottom line turned negative following the humongous provisions made by holding company for its ocean of non-performing loans which revealed the very weak nature of its assets quality over the last two years, at a time of unstable oil prices and weak macroeconomic conditions, which among others, helped to pile pressure on the financial position of the Pan-African banking group.
As shown in the table below, Ecobank Group reported a 23% rise in Gross Earnings for the period was up from N542.71bn to N542.71bn; while Interest Income rose also marginally by 24% over reported figure of 2015; while loss before Tax and after Tax were in negative position, dropping from those of corresponding period of 2015 by 183% and 335% respectively. Total Comprehensive Income for the two years under review was negative, sliding from a loss of N19.87bn in 2015 to N222.48bn.
The holding company’s rising cost of operation and huge impairment loss provision for the period at N221.7bn, from N105.22bn in 2015, which represents a 111% increase, wiped off the group’s profit, as the numbers turned red for the year. Net assets however inched up from N502.88bn in 2015 to N538.04 billion; just as loss per share for the period stood at 287 kobo from earnings of 116 kobo in 2015, resulting from the group’s seemingly weak risk management and service delivery cum products lines in the face a gloomy economic situation. These were further worsened by the increasing number of shares the books of the company arising from recent bonus and conversion of preference shares to equity.
Full year LPS of 287 kobo is a replica of the price in -2.86x, which gives no direction to investing public from 12.00x recorded in 2015 on the released date. The book value for the period stood at N29.32. Profit margin for the period turned negative when compared to last year’s, an evidence of misplaced priority in the group’s cost and risk management framework, which landed it in this sorry state. The company repositioning of its services and brand has not impacted on performance.

ETI shares might not be good trading instruments today, if the liquidity of the stock is put into consideration, especially with its Beta Value lower than 1, a far cry from the 1.51 industry average. Other numbers even paint a far gloomier picture, especially its Total Debt to Equity at 82.96%, which is also high, compared to its industry average of 48.54. This is however irrespective of its seeming high margin of safety that can be adjudged by the Book Value of N29.32 each.

Valuation
The equity looks mildly good at the market value, as the Price/Book Ratio for full-year 2016 stood at 0.28x, but the loan loss expenses for the period that grew by 111%, hitting N221.70bn is a threat to profitability. Meanwhile, the Book Value reveals an underpriced situation.

Analysts Opinion/Recommendations
Indications from both market and financial performance of ETI establish the fact that the management needs to put in more effort. The need to strategically improve investors’ worth by exploring every profitable investment instruments cannot be over emphasized. We therefore may not be able to recommend the equity’s shares for patronage by investors as part of their short-term portfolio. Instead, playing ETI for long term purposes is an intelligent investment decision, given that the stakeholders, particularly the shareholders, board and management would by now be making frantic efforts to ensure the story is rewritten for the good of all stakeholders and in particular, posterity.
Fundamentally, the equity is weak, as its unimpressive results will undoubtedly lead to negative reactions by investors. Management on the other hand, will need to come up with workable strategies capable of positioning the company at a competitive advantage in the industry. On the other hand, the management needs to concentrate efforts on strategies capable of building performance indices to ensure stronger numbers in subsequent quarters and years.

The management efficiency and capability to effectively optimize the company assets thereby ensuring profitability remains low.
Consequently, we have tested the gross earnings against the opex and noticed that the latter was 77.82%. Similarly, loans to deposit gave a 68.77%.
We are sure the investing community is not blind to the dwindling numbers hitting the market from the bank as they exit strategic positions, which saw the price sliding in 2016, before this recent attempt to look up. ETI’s provision for non-performing loans has grown surely and steadily by 268.95% in the last four years from N60.09bn in 2013 to N221.70 billion amounting to N431.43bn which is almost half a trillion for the period. The book value for the period has been undulating after touching high of N30.91 in 2014 and a low of N21.38 in 2013 to N29.32 in recent year. Investors’ confidence in the bank is shaking due weak numbers and high debt level and on the strength of its Book Value and expectation of rebound in earnings.

Four-Year Financial Performance Analysis
Ecobank Transnational Inc. has not been consistent in releasing its full year result to the investing public and its performance for the period under review has been irregular to reflect the management’s lack of commitment and the headwinds in the in the business environment where it operates.
Meanwhile a look at the observed years confirmed a growth in top line, while bottom has been undulating. This is a strong sign of caution, thus, hence the need for the management to pay a careful attention to its performance. There should be more aggressive risk management.
Investors seem to be rightly judging the share price of ETI in line with the status of the financials. As can be seen from the table above and below, market price for the period has been oscillating from N12.85 in 2013, after which it rebounded to N20.90 in 2014 before dropping to N8.20 as at the released dates. Gross Earnings built up from the N411.18bn in 2013 to N665bn in 2016, representing a 61.73% rise, while Profit after tax for the period moved from N23.57 billion in 2013 to peak at N65.68 billion in 2014, after which it fell to N21.25bn in 2015, before turning to a loss N52.62bn, whereas, it had improved by 178.66% between 2013 and 2014. Net assets for the period was up from N502.88bn in 2015 to N538.04bn.

Technically, the share price of ETI is bearish, as it nosedived from N24.45 and broke all support with different recovery attempts that failed after hitting a previous support turned resistant point at N13.93. Although the possibility of recovery at the current market price is high, we do not recommend it for traders due to its low liquidity but for long term investors.

OMORDION AMBROSE
CHIEF OPERATING OFFICER
INVESTDATA LIMITED
TEL:01-4724645,08028164085,07028061501
ambroseconsultants@yahoo.com