Ecobank: Analysts Anticipate Swift Rebound with three-fold Earnings Growth
Ecobank Transnational Incorporation, ETI, a Pan-African banking group has been projected for swift rebound with nearly three-fold earnings growth to $246.7 million in 2021.
Having deepened footprint in the digital business, analysts project that earnings from non-interest income would support lender’s growth stronger as it refocuses effort.
Low interest rate environment in some of ETI’s core market is expected to impact the income line. However, this comes with lower funding cost for the group.
Analysts however reiterate view that Ecobank Nigeria has sustained path to growth with multiple growth in return on equities from 0.4% in 2019 to 5.9% a year after.
This came despite multiple pressure from external influences on the global economy and well pronounced tough operating environment.
CardinalStone Partner hinted that ETI surprised by recording a one-off goodwill impairment charge of $159 million in Q3’20, led the investment firm to slash 2020 earnings forecast.
Analysts explained that the bank earnings for financial year 2020 is expected to come at $86.3 million.
However, CardinalStone noted that ETI management asserts that the goodwill impairment charge would have no impact on the firm’s liquidity or capital adequacy ratios, given its non-cash nature.
“While the bank appears on course to record its lowest earnings performance in at least ten years (other than the loss recorded in 2016), we anticipate a swift rebound in FY’21, based on our projection of a nearly three-fold earnings growth to $246.7 million”, CardinalStone said.
Accordingly, the firm stated that its earnings growth forecast’s key drivers are the non-recurrence of the goodwill impairment charge and increase in non-interest revenue.
This was propelled by rising adoption of the bank’s digital offerings -49% rise in digital transactions as against 52% decline in in-branch transactions as at 9m-2020.
Across its geographical markets, analysts noted that ETI continues to be supported by its performances in the Anglophone West Africa (AWA) and Francophone West Africa (UEMOA) regions.
Notwithstanding their moderately lower return on equities (ROEs) due to the COVID-19 impact.
It was however noted that Nigeria has sustained its path to recovery with an ROE of 5.9% from 0.4% in 2019.
Analysts explained that ETI management has hinted that it will focus more on its digital offerings and less on risk asset creation for the Nigerian business.
In contrast, the Central, Eastern and Southern Africa (CESA) region appears somewhat volatile due to the impact of Zimbabwe’s hyperinflationary environment.
CardinalStone analysts said their adjustments to estimates suggest a target price of ₦7.45 as against previous estimate of ₦5.90.
This reflects an exit price to book value of 0.26x, which translate to a discount to peer median of 0.50x.
“Our target price implies an upside of 14.6% to our ref price of ₦6.50”, analysts explained.
For 2020, CardinalStone projected that the Pan-African lender’s net earnings from interest yielding assets would drop to ₦353.278 billion from ₦369.012 billion estimated for 2020.
However, non-interest income is expected to rise significantly to ₦310.527 billion in 2021 as against estimated sum of ₦298.880 billion for 2020.
CardinalStone also projected to see net impairment charges sloping downward to ₦80.229 billion in 2021 as against its ₦89.808 billion projection for 2020.
ETI is expected to commit more into its operation in 2021, but then the Pan-African bank profit before tax would rise about twice the 2020 expectation.
Ecobank: Analysts Anticipate Swift Rebound with three-Fold Earnings Growth