Ecobank: Analysts Keep Eyes on Dividend Decision, Group Raised N300 Bln
After a strong recovery from the earnings downturn, Ecobank Transnational Incorporation (ETI) has seen significant improvement in its profitability performance. Now, after an earnings beat, the market awaits the group dividend decision for 2021.
Ecobank share price had inched up 45% to N13.01 as the group un-audited financial statement showed mouthwatering profitability performance. On Friday, following a stock market rout, investors price the stock to N12.05 – still above N9.01 pre-earning release.
Would the group pay dividends? How much given a strong earnings beat? According to the Pan-African lender’s unaudited financial statement filled with regulator, Ecobank profitability soared strongly, beating expectation of a moderate growth projection after balance sheet cleaning efforts.
Following a N300 billion capital raise to drive growth and strengthen liquidity position, the pace of earnings recoveries increased strongly in 2021, especially after write-off recovery, according to the management result presentation.
Last year, amidst the need to strengthen funding position, Ecobank group raised a total sum of $425 million from investors split among Blue-chip shareholder base with a long-term investment horizon.
Its local subsidiary, Ecobank Nigeria successfully raised $300 million 5-yr Eurobond in Feb 2021 while the Group raised $350 million 10NC5 Tier 2 Sustainability Bond in June 2021, then backed by Arise B.V., an existing major shareholder who made a $75 million Additional Tier 1 investment in ETI.
Legacy loans and payment related to the acquisition of ex-Oceanic Bank has been done, dusted and this appears to have cleared the way for the bank to return to the game centre.
The stock of NPLs (Stage 3) has reduced to $638 million, according to a report reviewed by MarketForces Africa. Having started with $749 million as of 1 January 2021, Ecobank saw new migrations into Stage 3 of $291 million and $403 million of Recoveries, Upgrades, Collections and Write-offs.
Consequently, the Pan African lender’s non-performing loans (NPL) ratio decreased from 7.6% in 2020 to 6.2% in 2021, according to the group report. Following the 2021 earnings beat, the stock market also re-rate the company share price which has seen a meteoric rise in valuation to N229.369 billion on 18.349 billion outstanding shares.
In its earnings presentation, Ecobank return on tangible equity printed at 18.8%, stayed above the group cost of capital and earnings per share inched higher by 55% to 1.04 cents. Ecobank said its group revenue has staged a comeback, from $1.97 billion in 2016 to $2.215 billion in 2021 after dropping low to $1.622 billion in 2019.
Grew by 4% to $1.7 billion in 2021, rising revenue benefited from the group diversified business model as Ecobank focused on trade finance, FICC and payment volume jumped 28% to $198 million. The Pan-African lender cost base has been reset through stringent cost management, operational discipline, and overall strategy of manufacturing centrally and distributing locally.
Pretax prfoit adjusted for goodwill charges have kept pace as costs have declined and the cost of risk has significantly improved on significant progress in addressing asset quality issues. Read: Ecobank Market Valuation Spikes 45% After Earnings Beat
The Fourth-quarter of 2021 loan growth has been supportive of the increased revenue, according to the group presentation. Group liquidity profile remains resilient, providing comfortable room to support planned loan growth, according to its earnings presentation.
Management said demand deposits continue to represent most of the total deposits with 64.5% as of December 2021. The group logged a 52.5% loan to deposit ratio in 2021, reflecting enhanced capacity for asset growth.
Late in January, MarketForces Africa reported that the lender’s share price surged 45% recently to N12 after the group declared a better than expected bottom line. Detail from the unaudited result showed that group revenue increased by 4 per cent to $1,741.1 million in dollar terms, but up 11 per cent to N712.9 billion when converted to Nigerian naira.
Profit before tax and goodwill impairment edged higher significantly in the period, up 41 per cent to $478.0 million (up 52 per cent to N195.7 billion). However, the Pan-African lender’s profit before tax sees a meteoric jump of 174 per cent to $478.0 million or 194 per cent to N195.7 billion equivalent. For the year ended in 2021, profit after tax spiked 296per cent to $349.5 million (up 324 per cent to N143.1 billion)
Ecobank total assets inched up 5 per cent to $27.3 billion, converting to naira, the group total assets expanded 11 per cent to N11.56 trillion. The report noted that the group pan Africa lending increased, albeit, moderately as asset quality improves.
Ecobank loans and advances to customers expanded 10 per cent to N4.066 trillion. Meanwhile, deposits from customers expanded by 13 per cent to N8. 83 trillion. In its equity report, CardinalStone analysts said their performance expectation primarily reflects lower operating expenses and net impairment charges.
Analysts stated that the operating expense decline is in line with management’s initiatives to optimise its operating efficiency, which led to the creation of 2 Regional Processing Centres (RPCs) in Lagos and Abidjan. Also supporting the moderation in operating expenses are lower staff costs and branch expenses, according to equity analysts note.
Ecobank informed that since 2015, it has reduced its headcount by 5,545 (through a right-sizing exercise) and closed about 578 physical branches. These initiatives supported a $300 million net expense savings and reduced operating expenses by cumulative average annual growth (CAGR) of -5.1%, CardinalStone stated.
CardinalStone analysts are projecting a further earnings growth of 19.3% supported by loan growth and recoveries. To the latter point, analysts said management believes that significant progress has been made concerning two key NPLs that could lead to recoveries of about $200 million.
“We are also watching out for management’s dividend decision against 2021 earnings. In our view, management’s body language suggests that it can make an argument for dividend payment to the board, following the achievement of key metrics related to performance, capital buffers and liquidity during the financial year”.
The Group’s Tier 1 capital adequacy ratio (CAR) and total CAR were 9.9% and 14.7% as of 30 June 2021, compared with 9.4% and 12.3% as of 31 December 2020.
However, Tier 1 CAR and total CAR are estimated at 10.4% and 14.5% as of 31 December 2021 – the increase in Tier 1 CAR is primarily due to internal profit generation and risk-weighted asset (RWA) optimization.
“In our view, management’s body language suggests that it can make an argument for dividend payment to the board, following the achievement of key metrics related to performance, capital buffers and liquidity during the financial year”, CardinalStone said in a report.
#Ecobank: Analysts Keep Eyes on Dividend Decision, Group Raised N300 Bln
