Coop Bank share price holds steady in a tough year

What you need to know:

  • Last November, Co-op Bank recorded the highest rise in profitability among peer banks for the first nine months of the year.
  • A report released by Bloomberg last week states that Kenya Commercial Bank and Equity Bank recorded a decline in share prices of 23 per cent and 19 per cent respectively, while Diamond Trust Bank (DTB) stock declined by 20 per cent.
  • “The performance arises from our focus on cost optimisation, improvement in operating efficiencies and innovative customer delivery platforms,” said managing director Gideon Muriuki.

Co-operative Bank last year posted the lowest decline in share price among listed lenders despite a harsh trading environment, a new report states.

The bank’s price per share at the Nairobi Stock Exchange dropped by 10 per cent, compared to the 22 per cent average decline in the value of stocks of other listed banks.

A report released by Bloomberg last week states that Kenya Commercial Bank and Equity Bank recorded a decline in share prices of 23 per cent and 19 per cent respectively, while Diamond Trust Bank (DTB) stock declined by 20 per cent.

“The sell-off can be attributed to a number of factors. Firstly, we think the banks were ‘priced to perfection’ at the beginning of 2015,” said the report. “Thus the poor performance could be attributed partly to below-consensus earnings estimates.”

Research firm Exotic, gives Co-op Bank a share price projection of Sh26.70 by the end of 2016, from its current Sh17.10. This is a 56.1 per cent gain on the current value, outperforming that of DTB, which is expected to rise 58 per cent to Sh295.9 from the current Sh187. KCB’s share is however expected to outperform its peers in the projections with a target price of Sh72.7, a 77 per cent gain on the current price at Sh41.

The report attributes Co-op bank’s consistency to the ‘Soaring Eagle’ Transformation Agenda. The strategy last year saw Co-operative Bank scoop a global award for financial inclusion. It was recognised by The Bankers Awards run by the Financial Times of London, for extending banking services through savings groups and impacting the lives of millions of savers.

RISE IN PROFITABILITY

Last November, Co-op Bank recorded the highest rise in profitability among peer banks for the first nine months of the year.

The bank’s net profit jumped 36.5 per cent, helped by increased lending, a drop in staff costs and the South Sudan unit turning profitable. Its net profit stood at Sh8.6 billion compared to Sh6.3 billion a year earlier.

In the same period, KCB Group, the country’s largest bank by assets, posted a 10 per cent net profit growth to Sh13.7 billion. Equity Group’s earnings, the second largest lender, rose 14 per cent to Sh12.8 billion.

Coop’s Bank’s Soaring Eagle strategy has seen the lender through difficult economic times. Over the period for instance, its total operating expenses remained tightly controlled, rising a mere 1 per cent, again the leanest position among peers.

While the loans advanced grew immensely, the cost to income ratio greatly improved from 58 per cent in 2014 to 49 per cent in 2015. This again was one of the most dramatic improvements in operating efficiency.

“The performance arises from our focus on cost optimisation, improvement in operating efficiencies and innovative customer delivery platforms,” said managing director Gideon Muriuki.

The Exotix report is positive on Kenyan banks performance in 2016.

“On the macro front, we believe that Kenya will be a visible out-performer in 2016, growing at 5.5 per cent compared to Sub Sahara Africa’s average under 4.0 per cent,” says the report.

“After a difficult year in 2015, when the country seemed to lurch from one small crisis to the next, the conditions are now coming together for a return of confidence.”

Normalising interest rates and lower oil prices are some of the factors that are expected to ease pressure on the external accounts.

The report states that investors should watch stocks of KCB, Co-op and DTB, since they are considered top in the industry. KCB should be closely watched due to its leading status in the sector and consistent profitability profile.

Co-op bank’s turnaround story is one strong element to watch while DTB’s high quality of assets and diversified earning base is a positive element to shore up its earnings.