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 30^th 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:

WEMA BANK PLC
Bourse	Nigerian Stock Exchange
Code Name	WEMABANK
Sector	FINANCIAL SERVICES
Market Classification	MAIN BOARD
Nature of Business	Commercial Banking
Date of Incorporation	May 2nd 1945
Date Listed	February 13th 1991
End of Accounting Year	31st December
Website	www.wemabank.com
Registrar	GTL-Registrars
Auditor	Deloitte &amp
Share Price@Relsd (N)	0.79
Earnings per Share	0.07
Intrinsic Value(N)	0.67
Share Outstanding	38,574,466,082
Market Capitalisation	30,473,828,205

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.

WEMA BANK PLC
Statement of Comprehensive Income
	2020	2019	%CHG
GROSS EARNINGS	57,825,190,000	64,827,122,000	10.80
INTEREST INCOME	46,395,559,000	49,038,405,000	5.39
INTEREST EXPENSES	26,296,799,000	31,843,392,000	17.42
NET INTEREST INCOME	20,098,760,000	17,195,013,000	16.89
OPEX	24,255,617,000	24,427,465,000	0.70
DEPRECIATION	2,348,849,000	2,200,752,000	6.73
AMORTISATION	–	–	#DIV/0!
PBT	3,057,428,000	4,731,188,000	35.38
TAX	412,862,000	642,320,000	35.72
PAT	2,644,567,000	4,088,869,000	35.32
TOTAL COMP INCOME	2,644,567,000	4,141,808,000	36.15
Statement of Financial Position
Total Assets	863,599,160,000	611,577,278,000	41.21
Total Liabilities	807,597,502,000	557,871,407,000	44.76
Net Assets	56,001,657,000	53,705,871,000	4.27
Property Plan & Equipment	21,958,067,000	20,636,686,000	6.40
Retained Earnings	3,301,457,000	8,076,931,000	59.12
Total Deposits	701,842,476,000	478,509,338,000	46.67
Total Loans and Advances	359,795,473,000	286,933,171,000	25.39

• 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
TICKERS	2020	2019	%CHG
Debt Ratio	93.52%	91.22%	2.52
Total Debt to Equity Ratio (MRQ)	14.42	10.39	38.83
Equity Ratio	6.48%	8.78%	26.16
Beta Value	0.89	1.11	19.82

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.

PROFITABILITY RATIOS
TICKERS	2020	2019	%CHG
PRE-TAX MARGIN	5.29%	7.30%	27.55
EFFECTIVE TAX RATE	13.50%	13.58%	0.54
IE TO GE	45.48%	49.12%	7.42
ROAE	4.72%	7.61%	37.97
ROAA	0.31%	0.67%	54.20

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.

EFFICIENCY RATIOS
TICKERS	2020	2019
OPEX TO GE	41.95%	37.68%	11.32
GE TO TA	6.70%	10.60%	36.83
LDR	51.26%	59.96%	14.51

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.

WEMA BANK PLC
Investment/Valuation Ratios
Tickers	2020	2019	%Chg
EPS	0.07	0.11	35.32
TCIP/SHARE	0.07	0.11	36.15
P/E-Ratio	3.84	1.73	122.08
Earnings Yield	8.68%	19.27%	54.97
BV/Share	1.45	1.39	4.27
PBV	0.54	0.40	37.75

Valuation

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.