By George Ngigi
In Summary
- KCB's market capitalisation rises to Sh125 billion compared to Equity Bank's Sh115 billion.
- The bank's stock is currently trading at Sh42 each, while Equity’s is at Sh31.25 per share.
Kenya’s largest bank by assets, KCB, has surpassed Equity Bank to become the most valuable lender listed at the stock market.
KCB’s market capitalisation has risen to Sh125
billion compared to Equity Bank’s Sh115 billion, while a year ago
Equity’s market valuation of Sh77.5 billion exceeded KCB’s by about Sh10
billion.
Equity’s high growth potential and rapid
transformation from a building society seven years ago to Kenya’s most
profitable bank has seen investors place a premium on the lender’s
stock, making it the most valuable based on market capitalisation at the
Nairobi Securities Exchange (NSE).
“Valuation is a function of profitability (among
others). KCB is becoming more efficient and just from that it can record
higher returns,” said Suntra Investment Bank analyst Johnson Nderi.
KCB’s share price has been fairly stable in the
past one month, at a time when Equity Bank’s stock dropped by 12.68 per
cent. The KCB stock is currently trading at Sh42 each, while Equity’s is
at Sh31.25 per share.
A big boost to KCB’s performance has come from
ongoing restructuring which helped to cut employee costs. Staff
restructuring, which started in 2011, was based on advice from
international consultancy firm Mckinsey.
A leaner payroll has seen it frog-jump Barclays
and Equity Bank, which were more profitable in 2009, to become the most
profitable lender in the country posting after tax earnings of Sh12.2
billion last year.
The bank cut the number of its employees by 409 to
5,162 last year across its 230 branches in the East African region. The
restructuring has seen KCB’s cost to income ratio drop to 57.4 per cent
as at last year, from 68.9 per cent in 2009.
“Both are good stocks, but KCB is more of a value
driven share while Equity is a growth stock,” said Vimal Parmar, head of
research at Burbidge Investments.
Equity Bank is the largest retail lender, being
home to more than half of the 14 million deposit accounts in the
country. Equity’s aggressiveness has seen it compete with KCB, which has
a total asset base of Sh367 billion compared to its Sh243 billion.
KCB has also had to deal with a dark past having
been weighed down by non-performing loans lent to politically connected
individuals in former President Moi’s government.
Expand operations
It rebranded to shake off the parastatal tag
Equity Bank is currently trading at a price
earnings (P/E) ratio of 9.1 times, with an ROE of 31.5 compared to the
sector averages of 9.9 times and 26.3 per cent respectively.
KCB has been aggressive on the regional front with operations in Uganda, Tanzania, Rwanda, South Sudan and Burundi. It is said to be eyeing the Ethiopian, Somalia, and DR Congo markets. Equity Bank has operations in Uganda, Tanzania, South Sudan and Rwanda.
The bank’s CEO has stated that it will concentrate on consolidating its presence in those markets before expanding further.
Equity Bank has, however, expanded business operations with Equity Investment Bank and Equity Insurance
Agency. It has a 24.85 per cent stake in mortgage lender Housing Finance.
Equity Bank released its first quarter results Monday showing growth of more than a fifth in its net profit to Sh3.2 billion.
The lenders’ performance is expected to reflect a lull in economic activity during the first three months of the year when election campaigns dominated public debate.
“It might not be very good because of the
uncertainty which affected credit uptake, but non-funded income may
grow,” said Mr Parmar.
attached to it as a result of government ownership of the bank. Equity,
on the other hand, has been a success story rising from a building
society to rank as one of the six largest banks in the country within a
decade.
Analysts at stockbrokerage firm Kestrel Capital say the bank’s premium valuation at the NSE is backed by its fundamentals.
“The high return on assets (ROE) justifies
valuation,” said Kestrel Monday in a research note sent to investors
after the release of the lender’s first quarter results.
No comments :
Post a Comment