Investors foresee value addition as Wema bank make surprise earnings upswing
Wema bank Plc made surprise earnings upswing, the first half result show significant value addition from top to bottom line.
The bank’s N2.607 billion profit before tax was about 44% more than N1.814 billion that the bank achieved in the first half of 2018.
Then, its profit after tax rested at N2.248 billion. This is 43% more than N1.569 billion in 2018 and just about 68% of its full year profit performance in 2018.
In the first half of financial year 2019, Wema bank has made equivalent of 68% of its full year result in 2018.
Banking sector cluster still favours Tier I banks very much but size is not always equal to quality strategy and finding value in economic chains.
The bank’s total asset closed the first quarter at N632.53 billion, partly funded by N52.035 billion shareholders’ funds.
The share price of the bank plunged marginally year to date to close at 62 kobo on Friday, July 26th 2019. The stock opened the year at 63 kobo per share, anyway.
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Analysts said that sometimes, when return on investment is paired with mid-size, smaller and big tickets banks, more often than not; size becomes a disadvantage.
In the banking sector, the best performing bank is not the largest, as their historical financial statements indicate.
There is nothing that excites investors more than a profitable venture. Wema Bank Plc.’s first half scorecard shows that the bank crossed the red line to the other side. Earnings per share increased from 8.2kobo to 11.6 kobo on the back of improved bottom line.
Gross earnings settled at N40.835 billion in the first half of financial year 2019. This represents 27.48% increase year on year when compare with N32.033 billion raked in in the first half in 2018.
The issue with the bank still lies largely on its cost and operating expenses.
In the first half, more than N16 billion was expended as operating expenses. Analysts said that there is need for clear-cut strategy that would improve cost efficiency going forward.
Digital footprint would be a tool, but not without cheap funds from retail end.
In its 2018 result, Wema Bank grossed N71.529 billion. That means that half way into the year, the bank has made more than 57% of the FY 2018 gross revenue.
More likely, the bank would beat analysts’ estimates, just as it has crossed its half year 2019 estimates.
Managing funds and earnings assets
The bank interest earnings assets pushed the overall performance. Interest income surged by 29.52% from N25.395 billion to N32.892 billion.
Meanwhile, the advantage was doused by equivalent increase in interest expenses. Year on year, interest expenses jerked up by 28.76% from N16.306 billion to N20.995.
That means that Wema bank paid N63.83 on every N100 used to finance interest yielding assets, slightly below N64.20 expended in 2018.
Meanwhile, in the financial year 2018, the bank paid N53.17 on every N100 accessed to fund interest earnings assets.
With rising impairment on assets, it is obvious the bank still struggling with assets quality at the time when the banking sector non-performing reached just about 11%.
From net interest income of N11.073 billion, the bank booked N823.57 million as impairment charge in the first half of 2019 as against N344.165 million that was took out in 2018.
That 139% increase is very much significant, material to the operating performance. Non-interest income sources saved the day.
Fee and commission as well as trading income surged, as operating income increased by about 24% to pitch at N19.015 billion as against N15.383 billion in 2018.
The bank wage bills increased. In the first half of 2019, personnel expenses increased by 32.5% to N6.628 billion from N5.003 billion in the comparable period in 2018.
In addition to this vast wage bill, other operating expenses expanded to N8.375 billion from N7.270 billion.
The breakdown of other operating expenses shows items which include NDIC premium, AMCON Charge, donations, auditor remunerations etc.
Meanwhile, about N304 million was spent on diesel in 6-months as against N271.256 million in the comparable period.
Investors foresee value addition as Wema bank make surprise earnings upswing
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