CardinalStone Sees 47% Upside in Ecobank

CardinalStone Sees 47% Upside in Ecobank

Equities research analysts at CardinalStone Partners Limited have estimated a 47% upside potential in Ecobank Transnational Incorporated (ETI) on an expected spike in earnings per share and steady dividend payment in 2023.

Following a rally in the stock market on Monday, the Pan African lender (Ticker: ETI) crossed N310 billion at N16.9 per share spread over more than 18.349 billion shares outstanding.

In its latest update on the banking industry, CardinalStone is expecting the group earnings per share to hit $1.3 in the financial year 2023, higher than its actual performance in 2022.

With an expectation that gross earnings will surge by 9.7%, analysts estimated that Ecobank group’s annual profit would settle at $471.7 million, a 28.6337% growth above $366.7 million delivered in 2022.

Despite the expected growth, analysts estimated that dividend payments would be flattish till 2024.

In the last few years, ETI has been able to optimize costs as its cost-to-income ratio registered at 56.4%, the lowest in a decade, reduce its non-performing loans ratio from 8.2% in 2015 to 5.2% in 2022,

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In an effort to reduce funding costs amidst interest rates in its key African market, the group expanded its low-cost deposit base with the current account, savings account (CASA) deposit mix accounting for 82.0% of customer deposits in 2022, up from 68.9% in 2015.

“This achievement rode off initiatives centered on a strengthened risk and control framework, stable funding, which leveraged brand recognition and relationships, and investments in technology”, CardinalStone stated.

Looking ahead, the investment firm said given the opportunities embedded in intra-Africa linkages such as the African Continental Free Trade Area (AfCFTA), the Pan-African Payment and Settlement System (PAPSS), and much more, it sees scope for accretive opportunities as the most regionally diversified banking group.

“While we await the next strategic roadmap for the bank’s future, which management intends to communicate in H2:2023, in the near term, the bank has expressed its strong intention to execute important short-term initiatives to drive growth and returns.

“These initiatives include group-wide expense discipline, continued generation of low-cost deposits to reduce funding costs, enhanced alignment of resource allocation and returns, precision in execution, and continued balance sheet and returns optimisation”, according to the update.

CardinalStone analysts arrived at a target price of N23.23, saying the new estimate implies a potential capital appreciation of 47.0%.  The firm added that ETI is trading at a current PB of 0.6x compared to 1.0x for select Europe, Middle East, and Africa (EMEA) peers. 

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