Wema Bank 2020Q3: Declining Numbers, Time To Retool For A Rebound

Rating: Hold

Current Market Price: N0.67

Year Low: N0.44

Fair Value: N0.65

Equity Analyst: Tunde Segun Jeariogbe

Key Financial Ratios

  • This report observed the financials of Wema Bank Plc for the nine-month ended 30th September, 2020, compared same to numbers for the similar period of 2019 to established growth, make projections and arrive at valuations.
  • It is noteworthy that as is our usual practice, we have maintained a conservative valuation approach.
  • Placed side by side, the current performance is a lower performance to the comparable quarter of last year.
  • Going by the low performance indices, the chances of the bank maintaining its recently dividend payment trend is slim.
  • See the tables below for further analysis:
BourseNigerian Stock Exchange
Market ClassificationMAIN BOARD
Nature of BusinessCommercial Banking
Date of IncorporationMay 2nd 1945
Date ListedFebruary 13th 1991
End of Accounting Year31st December
AuditorDeloitte &amp
Share Price@Relsd (N)                                                         0.79
Earnings per Share                                                         0.07
Intrinsic Value(N)                                                         0.67
Share Outstanding38,574,466,082
Market Capitalisation                                       30,473,828,205
Source: Company, NSE and Investdata Research

Company Figures

  • Gross Earnings estimated for the period is N57.82 billion, which is 10.80% below the N64.82 billion achieved at the end of the corresponding quarter of 2019.
  • Interest Income dipped by a marginal 5.39% to N46.39 billion, versus N49.03 billion achieved in the prior nine months.
  • Similarly, Interest Expenses dipped by 17.42% to N26.29 billion, compared to the N49.03 billion reported in the comparable quarter.
  • Thus, Net Interest Income achieved at the end of the quarter is same as N20.09 billion, as against N17.19 billion in the similar quarter of 2019.
  • Operating Expenses for the period was valued at N24.25 billion, a marginal downward adjustment from the previous N24.42 billion.
  • Profit before Tax is valued for N3.05 billion, down from the N4.73 billion in the previous quarter.
  • After considering the Tax Expenses, the management of Wema Bank posted a profit of N2.64 billion, down by 35.32% from the N4.08 billion posted in the corresponding quarter.
Statement of Comprehensive Income
GROSS EARNINGS                 57,825,190,000              64,827,122,00010.80
INTEREST INCOME                 46,395,559,000              49,038,405,0005.39
INTEREST EXPENSES                 26,296,799,000              31,843,392,00017.42
NET INTEREST INCOME                 20,098,760,000              17,195,013,00016.89
OPEX                 24,255,617,000              24,427,465,0000.70
DEPRECIATION                    2,348,849,000                2,200,752,0006.73
AMORTISATION                                           –                                          –  #DIV/0!
PBT                    3,057,428,000                4,731,188,00035.38
TAX                       412,862,000                    642,320,00035.72
PAT                    2,644,567,000                4,088,869,00035.32
TOTAL COMP INCOME                    2,644,567,000                4,141,808,00036.15
Statement of Financial Position
Total Assets               863,599,160,000           611,577,278,00041.21
Total Liabilities               807,597,502,000           557,871,407,00044.76
Net Assets                 56,001,657,000              53,705,871,0004.27
Property Plan & Equipment                 21,958,067,000              20,636,686,0006.40
Retained Earnings                    3,301,457,000                8,076,931,00059.12
Total Deposits               701,842,476,000           478,509,338,00046.67
Total Loans and Advances               359,795,473,000           286,933,171,00025.39
Source: Company, NSE and Investdata Research
  • Total Assets stood at N863.59 billion, 41.21% better than the N611.57 billion in the comparable period.
  • Similarly, Total Liabilities is valued at N807.59 billion, as against N557.87 billion in the corresponding quarter.
  • Net Assets rose to N56.00 billion, a marginal growth over the N53.70 billion in the corresponding period.
  • Retained Earnings for the period is valued at N3.30 billion, down from the N8.07 billion in the similar quarter.
  • Total Deposits during the period climbed to N701.84 billion, representing 46.67% improvement over the deposits collected in the similar period.
  • Total Loans and Advances released through the period is N359.79 billion, versus N286.93 billion in the corresponding period.

Financial Strength/Solvency Ratios

  • Ratio Estimates confirmed that the total Liabilities reported at the end of the quarter is same as 93.52% of the Financial Institution Assets valuation for the period, this is about same as the 91.22% estimated in the corresponding quarter.
  • Thus, it was established that Total Debt used through the first nine months of 2020 can replicate Equity value 14.42 times, this is above the 10.39 times replicate in the comparable quarter.
  •  We also compared the relationship between the bank’s Equity to its Asset, and it was established that Equity is only 6.48% of Total Assets value at the end of the quarter. This is a reduced risk on the part of equity holders.
  • Estimated Beta value for Wema Bank as of the time this report was compiled stood at 0.89 which is below the market beta and the industrial average.
Financial Strength/Solvency Ratio
Debt Ratio93.52%91.22%2.52
Total Debt to Equity Ratio (MRQ)                                    14.42                                 10.3938.83
Equity Ratio6.48%8.78%26.16
Beta Value                                       0.89                                   1.1119.82
Source: Company, NSE and Investdata Research

Profitability Ratios

  • Pre-Tax Margin at 5.29%, dropping by 27.55% from the 7.30% estimated at the end of the similar quarter in 2019.
  • Interest Expenses to Gross Earnings dipped by marginal 0.54% to 45.48% from the previously estimated 49.12%.
  • Return on Average Equity, at the end of the quarter, was estimated at 4.72% compared to the previous 7.61%.
  • See the table below for detailed profitability ratios and comparison.
PRE-TAX MARGIN5.29%7.30%27.55
EFFECTIVE TAX RATE13.50%13.58%0.54
IE TO GE45.48%49.12%7.42
Source: Company, NSE and Investdata Research

Efficiency Ratio

  • Operating Expenses to Gross Earnings Ratio rose above the corresponding quarter’s estimate by a 11.32% after moving from 37.68% to 41.95%, signaling a decline in management efficiency through the quarter.
  • Gross Earning is same as 6.70% of the Total Assets value at the end of the quarter. This is 36.83% below the 10.60% estimated at the end of previous third quarter.
  • It was equally established that 51.26% of the total deposits for the period were given out as loans and advances to customers, which is 14.51% below the 59.96% deposit given out as loans and advances through 2019 nine months business session.
OPEX TO GE41.95%37.68%11.32
GE TO TA6.70%10.60%36.83
Source: Company, NSE and Investdata Research

Investment Ratios

  • The estimated amount earned per unit of Wema Bank for the period under review dropped by 35.32% from N0.11 to N0.07.
  • The said Earnings Per Share yielded 8.62% of the current market price on the day the result was made available, a lower yield when compared to the 19.27% achieved in the comparable period of 2019.
  • Our nine months adjusted PE/Ratio for the period is 3.84x as against 1.73x estimated in the corresponding period.
  • As we speak the Book Value of Wema Bank is N1.45, almost same as N1.39 estimated in the corresponding quarter.
  • Further confirming the seemingly underpriced state of Wema Bank Shares is the Price to Book Value ratio that stood below unity.
Investment/Valuation Ratios
Earnings Yield8.68%19.27%54.97
Source: Company, NSE and Investdata Research


Although Wema Bank already broke the non-dividend payment jinx, we maintain a non-dividend paying stock valuation approach, and we shall hold this position until we can establish its dividend policy direction/growth status. We further justified our stand by the lower performance indices posted for the third quarter of the year. On this strength, we valued each units of Wema Bank Plc at N0.65. Also, considering the current market price of N0.67 (as at the time this report was concluded), we Rate Wema Bank shares a Hold.