Equity eastern Africa investments pay off

Equity Bank stand during a trade fair in Kigali, Rwanda. file photo | nmg 

By GEOFFREY IRUNGU

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Summary

• The banks’ subsidiaries have increased their profit before tax contribution to 19 per cent from 14 per cent even as other banks have kept off some of the markets.
• This has seen the group increase its total net profit even as other institutions saw their profits fall or stagnate.
• Despite the good results from subsidiaries in 2017 and latest quarter one results, analysts say that the bank is still overvalued with SIB recommending a “sell” while Dyer and Blair Investment Bank recommends a “hold” on the company’s shares.

Equity Bank Group is benefiting from its expansion strategy in the eastern African region while its local affiliates are showing an upward growth trend, analysts say.

The banks’ subsidiaries have increased their profit before tax contribution to 19 per cent from 14 per cent even as other banks have kept off some of the markets.

This has seen the group increase its total net profit even as other institutions saw their profits fall or stagnate.

“One of the focus areas in the Group’s post rate cap business model is on extracting more revenue from its subsidiaries. Current evidence points to the attainment of that going by the financial year 2017 and first quarter numbers,” said Standard Investment Bank (SIB) in the latest analysis of the lender’s financials.

“Equity Group has proven that the business model it encompassed post rate cap is effective in comparison to its peers,” said SIB.

In 2017, for example, the geographical and diversification strategy has resulted in it telco, Equitel’s profitability growing by 204 per cent, Equity Bank South Sudan (291 per cent), Equity Investment Bank (481 per cent), Tanzania (68 per cent), DR Congo (78 per cent), Rwanda (58 per cent) and Uganda rise 28 per cent.

In an analysis earlier in the year, Rencap had advised that African banks such as Equity and KCB

should concentrate on strengthening subsidiaries in East Africa and go slow outside the five members of the East Africa Community (EAC).

Despite the good results from subsidiaries in 2017 and latest quarter one results, analysts say that the bank is still overvalued with SIB recommending a “sell” while Dyer and Blair Investment Bank recommends a “hold” on the company’s shares.

SIB noted that the firm is trading at 2.22 times stock price-to-book (P/B) value, which is a 53.5 per cent premium to the market, indicating that it is overvalued but added that this was also subject to its future value update after the second quarter results.

Dyer and Blair said that the price-to-earnings (P/E) ratio of the share standing at 9.5 times is above the industry media of 8.3 while its P/B ratio at more than two times was also higher than sector median which is only 1.2.

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