Hold Co-op, Britam, consider exiting NBK

Co-op Bank: Last week, Co-operative Bank announced a 12 per cent dip in its annual net profits for the full year ended December 2014.

This was a Sh1.1 billion net drop to Sh8 billion from Sh9.1 billion recorded the previous year.

The bank attributed the contraction in earnings to the lay-off costs of 160 senior staff carried out last year. The bank spent Sh1.3 billion in the programme. Similarly, the bank cited Sh500 million net loss suffered by its South Sudan branch.

Alarmingly, 23 of the branches opened by the bank last year recorded a combined loss of Sh300 million.

Nonetheless, the bank’s net loan book grew to Sh179.5 billion from Sh137.1 billion realised in 2013. Following the profit dip, the bank announced that it would be retaining international advisory firm McKinsey as it seeks to advance its cost-cutting plan.

According to Kevin Tuitoek, a research analyst at Genghis Capital Limited, the stock is a hold for its investors, since its capital buffers remain well in place. “The restructuring by McKinsey offers the stock some upward potential that medium to long-term investors may wish to see,” says Mr Tuitoek.

He however cautions that the bank’s core base, which comprises of cooperatives, is now open to competitors.

VOLATILE STOCKS

Further, according to Eric Munywoki, a research analyst at Old Mutual Securities, the bank’s soaring eagle strategy is expected to bring down its cost to income ratio to below 60 per cent, bring in client-based management while increasing mobile offering.

“Investors shouldn’t worry too much about the declined profits. This stock is a hold and will eventually reward medium to long-term investors,” he says. On Friday, the stock opened at Sh20.50, reflecting the same price it closed trading at on Thursday. In the past one year, the counter has traded at a low of Sh16.45 per share and a high of Sh23.25 apiece.

Interestingly, Thursday’s closing price was a 1.22 per cent improvement with a 4.77 million traded volume despite profit dip. 

National Bank: NBK last week was the second bank to announce a profit decline. On Wednesday, the bank announced that its pre-tax profit had contracted by 28 per cent to Sh1.3 billion.

The decline was attributed to a one-off cost of laying off 190 workers. The voluntary retirement, according to the bank, cost Sh1.1 billion.

On Friday, the counter opened 8 per cent lower at Sh23 per share from Sh25 apiece recorded on Thursday. According to Rufus Mwanyasi, an investment analyst, National Bank does not offer investors any tangible returns despite being a risky counter to buy.

“The volatility of the stock is too low at 0.19 measured by its beta and it has an average monthly return of negative 0.41 per cent. This is not attractive,” he said.

Beta is a measure of the volatility of a security or a portfolio in comparison to the market as a whole.

Apparently, Mr. Mwanyasi observes, NBK would need to compensate investors with a return of up to 8.92 per cent to justify buying or holding of the stock. Nonetheless, Mr Munywoki agrees the counter is facing headwinds.

“NBK has a few challenges from high non-performing loans, the highest cost to income ratio of 75 per cent at the market and a looming doubling share dilution from its rights issue,” he says.

“But long-term investors with a backbone may opt to jump in at the discount as the bank is restructuring just as Co-op Bank and will rebound in the medium-term.”

Britam: Shareholders of Britam will get a Sh0.05 increase in their dividend this year. This is after Britam announced that it would pay Sh0.30 dividends per share on Friday. The announcement followed a 20 per cent jump in pre-tax profits to Sh3.73 billion.

Subsequently, the stock’s earnings per share rose to Sh1.47 from Sh1.19.

The company’s total revenue rose to Sh20.69 billion from Sh15.13 billion. Total assets jumped from Sh46.90 billion to Sh72.98 billion. On Friday, the counter opened 1.85 per cent lower at Sh26.50 per share. On Thursday, it had dipped by 1.82 per cent to Sh27 per share from Sh27.50.

Over the past one year, Britam has seen a low of Sh16.40 and a high of Sh40 per share.