Ecobank shareholders optimistic as stock gains 24.4% in three months

Shareholders of Ecobank Transnational Incorporated (ETI) have cause to entertain strong optimism as the value of the company’s stock recorded strong price valuation in the first quarter of 2024. This is a positive development amid headwinds that confront the business environment in many sectors of the economy.

A look at the stock performance on the Nigerian Exchange (NGX) showed that ETI closed its last trading day (Friday, March 22, 2024) at N26.00 per share while many industry peers recorded negative performance..

ETI stock began the year with a share price of 20.90 NGN and has since gained 24.4% on that price valuation, ranking it 29th on the NGX in terms of year-to-date performance.

“Shareholders can be optimistic about ETI knowing the stock has accrued 8% over the past four-week period—28th best on NGX”, analysts at African ‘Xchanges said in their March 22 week-end report.

The report also stated that Ecobank Transnational was the 49th most traded stock on the Nigerian Stock Exchange over the past three months (Dec 22, 2023 – Mar 22, 2024).

 

Furthermore, ETI has traded a total volume of 130 million shares—in 4,195 deals—valued at NGN 3.25 billion over the period, with an average of 2.07 million traded shares per session.

A volume high of 18.8 million was achieved on February 9th, and a low of 90,790 on December 27th, for the same period. The bank’s share price presents a compelling investment opportunity.

Aside from positive stock price valuation, ETI is set to surpass its 2022 5-year performance according to its commendable 9-month result as at September 30, 2023.

The bank had disclosed a significant 55% year-on-year increase in profit before tax, amounting to N262.171 billion, as indicated in the audited financial statement filed with the NGX.

This figure not only reflects a remarkable increase but is also noteworthy as it stands 14 percent higher than the full-year figure of N230.55 billion recorded in 2022, which itself represented a 5-year high.

The banking group ascribed this growth to a combination of increased revenue and enhanced cost efficiency, according to its CEO Jeremy Awori, who said the bank’s profit before tax of $450m for the nine months to September 2023 was an increase of 55 percent in constant currency from the prior year.

“Moreover, we delivered profits attributable to ETI shareholders of $224m, which translated to a return on tangible shareholders’ equity of 25.6 percent on the back of a strong revenue growth of 34 percent in constant currency and an improved cost-to-income ratio of 53.7 percent”, the CEO said.

 

A review of the financial statements showed that in the first nine months of 2023, operating income surged by 12 percent or 55 percent in constant currency to $1.518 billion or N884.618 billion.

This figure not only signifies a noteworthy year-on-year growth but also surpassed the full-year 5-year record of N794.860 billion set in 2022.

While the improved cost-to-income ratio of 53.7 percent was seen to have played a significant role in bolstering the impressive bottom, a comparative analysis with major peers revealed that it was relatively high.

In addition to the significant rise in net revenue and enhanced cost efficiency contributing to the impressive bottom line, another critical success factor noted was the group’s widespread geographic diversification in alleviating challenges specific to regions.

 

This advantage was instrumental in mitigating challenges unique to specific regions, as highlighted in the banking group’s 9-month result statement:

“Group profit before tax increased by 12% or 55% at constant currency to $450 million, driven by positive operating leverage (revenue growth higher than expense growth) and despite the exposure to Government of Ghana (GoG) Eurobonds substantially increasing impairment charges on other financial assets and continued hyperinflation in Zimbabwe and South Sudan creating net monetary losses.”

The geographical diversification advantage was evident in Nigeria as its business in the country lags behind the financial performance of the banking group’s other geographic regions.

In the 2022 FY, the Nigeria business accounted for 12.85 percent ($239 million) of the group’s net revenue. This trend continued in the 9M period of 2023, with the Nigeria business contributing 12.52 percenmt ($190 million) to the group’s net revenue.

Following its impressive performance in 2022, Ecobank paid a final dividend of $0.11 cents per share, representing a 5.6 percent payout.

Over the last five years, the bank had distributed dividends in two of those years. Given the bank’s potential to exceed its 2022 profit after tax, it is expected that the banking group should increase its dividend per share in contrast to 2022.

This potential increase in dividends would contribute to enhancing the current dividend yield, which stands at 3.29 percent and helps strengthen investor confidence.

In the prior year, ETI stock rallied to 21.84 percent YtD gain, outperforming the NG Banks industry and NGXASI. The Year-to-Date gain in 2023 surged to an impressive 61.32 percent as of December. This substantial gain underscored the positive investor sentiment and market confidence in Ecobank’s ongoing financial success and growth prospects.