[2007-09-18]  Demand for Stanbic Stocks Soars
INVESTORS in Stanbic Bank have reason to smile, because it is the most liquid of all the listed companies on Uganda Securities Exchange.

The advantage with the company being so liquid is that investors can easily convert their investment into cash at any time they need it.


The liquidity in Stanbic Bank is mainly because of the bank's strong first half performance that saw 31 per cent increase in profits in its un-audited half year financial statements and the fact that SBU's current valuation is within the low-end of its historical ranges of companies listed on the Uganda Stock Exchange.

The Bank's net profit after tax increased from Shs18.6 billion earned during the first six months of 2006 to Shs24.2 billion in June 2007. This has increased the bank's earning per share from Shs3.63 in June 2006 to Shs4.74 in June 2007.

An investment guide from ReNissance Capital recently said: "SBU share is the most liquid - and liquidity is a great sweetener to both retail and block buyers,"

ReNaissance Capital analysts say the bank contributes over 90 per cent of the trading volumes on the USE, and regressing the price returns against the USE, the squared value indicates that about 32 per cent of the USE returns are a direct influence of the SBU performance.

Uganda Securities Exchange said in its quarterly report of 2007 covering the period April, May and June that the average daily turnover at USE since the listing of Stanbic Bank on January 2007 is approximately Shs500 million and total number of deals for the quarter was Shs3,865 deals.

The USE second quarter report said: "It therefore comes as no surprise that SBU continued to dominate trading activity posting 92.46 per cent of turnover and approximately 98.35 per cent of the volume,"

Buy

ReNaissance Capital analysts say SBU's implied Price/Earnings (P/E) ratio of 14.2 falls within buying segment.

However, according to analysts, the current market valuation exceeds DCF valuation by 12 per cent, which gives the share price quite some up-side risk as most companies trade within 15-30 per cent of DCF valuations.

The banks' earnings are not very volatile, and with such predictability, we recommend investors to BUY the share up-to an implied P/E ratio of 16 valuation".

The bank's implied P/E ratio moves into BUY segment and the analysts believe the growth of earnings in the next half is sustainable as the bank fully expands its market share in mortgage and personal lending.

Although analysts are concerned about the sustainability of the bank's good performance in the remaining second half of the year, remain optimistic of the bank's half year performance.

"The bank introduced its mortgage loans to the market and we believe this is where significant growth will come from. There is tremendous demand in the segment and provision of the loans has been greatly hampered by lack of long-term financing in the market," said the analysts.

They argue that SBU has a strong balance sheet that can sustain lending of this nature, and we expect the bank to capture a reasonable market share in this segment by the end of the year.

The bank investments in Treasury bonds were reduced by a gigantic 45.5 per cent from FY2006's Shs106, 881million to Shs58,214mn, as the bank reallocates the funds to higher yielding assets. Loans and advances to customer jumped by 5.3 per cent from 2006's Shs280, 527million. Compared to half year (HY2006), loans and advances have gone up 27.8 per cent.

The analysts signaled out that the impairment losses on loans and advances went up by 8.9 per cent to Shs1.8bn from HY2006's Shs1.7 billion.

The Ren Cap analysts further reveals the most appealing factor for the bank is that it still has a "margin of error" in its business. The bank has not reached our "aggressive loan book" segment and its margins are still high.

The analyst warns: "We expect competition in the personal loan segment to hit up, but SBU's strength is in its branch network, and ultimately the company should gain a lion's share".
They pointed that Barclays Bank's global strategy seems to be to increase its network and brand presence, this came about after integration of systems with the acquired Nile Bank, Barclays Bank Uganda is likely to follow this apparent parent strategy.

They are also concerned that this may trigger the other international bank, Standard Chartered Bank Uganda to look for a Suitor/victim in order to be competitive and remain in the top tier.

Meanwhile on the other hand they say they don't do not expect Citi bank to fight for brand presence and branch network.


Source: Copyright © 2007 The Monitor.