Rating: Hold
Current Market Price: N0.60

Year High: N0.82
Year Low: N0.39
Fair Value: N0.64
Equity Analyst: Tunde Segun Jeariogbe

Key Investment Ratios

• In this report, the full-year financial numbers of Jaiz Bank for the year ended 31st December 2019 is examined, and compared with numbers released in the corresponding period of 2018 to establish growth, projections, and valuation ratios accordingly.
• For the 2019 financial year, the board of Jaiz Bank recommended a cash dividend of N0.03 per share, with its books scheduled for closure between June 29 and July 3, following which June 26, 2020, is the qualification date.
• According to the report presented through the Nigerian Stock Exchange (NSE), the dividend will be credited to investors’ bank account on July 16, 2020.
• Like other financial institutions, the bank achieved its income mainly from Financing Contracts and various Investment Activities. Meanwhile, unlike industry peers, rather than charging interest, Jaiz Bank runs on a profit-sharing policy (interest-free or ethical banking). Though this is a highly risky business approach, it guarantees higher profits, while reduces non-performance with a strong risk management team.
• Operating Expense is observed to account for over 50% of the Gross Earnings through the year. Generally, the current report is an outstanding improvement over the comparable year. See the tables below for details:

Company figures

• Gross Earnings for the year is estimated at N13.51 billion, which is 79.86% above the N7.51 billion reported in its corresponding year report.
• Income from its various Contracts Financing activities through the year is estimated at N7.46 billion, higher than the N6.29 billion done in the 2018 financial year by 18.59%.
• During the period, a total of N6.05 billion was realised from its Investment Activities through the year, 394.91% higher than the N1.22 billion reported through the 2018 business year
• After considering losses made from Return on Equity Investment Account Holders and Net Impairment Charges, and considering other income items, it reported a Total Income of N10.66 billion for the year. This is 51.02% above the N7.05 billion reported in its corresponding year report.
• Operating Expenses (Staff Cost & Other Operating Expenses combined), stood at N7.83 billion as against the N5.55 billion used through the comparable year.
• Profit before Tax which equally stood as Operating Profits in the absence of finance charges/incomes is valued at N2.11 billion, versus N897.70 million in a similar period of 2018.
• A total of N332.76 million accounted for Tax Expenses, as against the N63.33 million in the prior year.
• Profit reported for the period stood at N2.44 billion, same as 192.77% above the N834.36 million reported in the corresponding year (2018).

• At the end of the 2019 financial year, Jaiz Bank’s Total Assets was valued at N167.27 billion, representing 54.22% improvement over the N108.46 billion valued at the end of 2018 business session.
• Meanwhile, Total Liabilities, a chunk of which is Customer Deposits, is valued at N94.13 billion, higher than the N56.27 billion stated in its 2018 financial report.
• Properties Plant and Equipment investments through the year are valued at N2.54 billion, a slight drop from the N2.57 billion investment done in 2018.
• Shareholders’ Funds grew by 18.63% to N15.55 billion, as against N13.10 billion in the corresponding year.
• Meanwhile, Retained Earnings remained negative at N4.08 billion, compared to the N4.57 billion Accumulated Loss in the corresponding year.
• Customers’ Deposits received through the 2019 financial year was valued at N69.60 billion, as against N45.95 billion deposits achieved in 2018 financial year.

Financial Strength/Solvency Ratios

• Total Liabilities reported for the year is the same as 56.27% of the Total Assets number, which is 8.47% higher than the 51.88% ratio estimated in the corresponding year. In our opinion, this is a good ratio, especially considering the fact that Deposits accounted for the largest proportion of its reported Liabilities.
• Meanwhile, typical of financial institutions, Total Debt to Equity Ratio is on the high side. We have currently established that Total Debt for the year can replicate the Equity value more than six times.
• Due to the large Liabilities carried by the Jaiz Bank, it was established that Equity Value at the end of the 2019 financial year only accounted for 9.30% of the Total Assets Valuation. This is a drop when compared to the 12.09% contribution estimated from the 2018 numbers.
• As at the time this result was compiled, Jaiz Bank’s beta value was estimated at 1.00 lower than the industry average.

Profitability Ratios

• EBITDA/Pre-Tax Margin is estimated at 15.61%, this is a 30.68% growth above the estimated 11.94% in the corresponding year.
• Return on Average Equity through the year was estimated at 15.71%, the same as 146.79% above 6.36% in 2018.
• Return on Assets was equally estimated at 1.46%, higher than the estimated 0.77% in 2018 by 89.84%.

Efficiency Ratios

• Operating Expenses through the period stood below the corresponding year by 21.54% having dropped from 73.89% to 57.97%, which is by every means an outstanding improvement in the management efficiency within the period observed
• Gross Earnings is the same as 8.08% of the Total Assets valuation at the end of the year, this is the same as 16.62% improvement in management efficiency within the compared years.
• Financial Leverage, a ratio that compares Total Liabilities with Net Assets, showed that Total Liabilities can replicate Net Assets in 6.05 times. A similar ratio was tested above.

Investment/Valuation Ratios

• At the end of the year, N0.08 was earned on each unit of Jaiz Bank listed shares. This higher than the N0.03 earned per share at the end of the 2018 operating period.
• The price of Jaiz Bank at the time this report was made available to the investing public can replicate the earnings per share 8.20 times (P/E-Ratio=18.36x) this is lower than the 18.36x estimated in 2018.
• The said earnings per share is a 12.19% yield of the price of Jaiz Bank on the exchange when the result was released to the investing public, a better yield when compared to the 5.45% yield in 2018.
• Estimated Book Value per shares of Jaiz Bank is currently N0.53, the same as 59.03% above the N0.44 estimated in 2018.
• Thus Price to Book Value stood at 1.29x as against 0.40x. This simply implies that the stock is currently selling below its book value on the exchange.

Valuation

While trying to place a fair value on each unit of Jaiz Bank shares, we considered the average of two valuation models. FCFE Stable GrowthModel and H-Model, following which we projected appropriately for expected returns over the coming two years. Thus, each unit of Jaiz Bank is valued at N0.64 per share. Consequently, considering the closeness between our valuation and the current market price of Jaiz Bank, we have rated it a Hold.