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Afribank

Manasseh Egedegbe's avatar
Manasseh Egedegbe
Apr 10, 2008

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Afribank has been classified as one of those stocks with hidden value in the market that investors, including myself, do not like looking at. The bank floated a public offer in November 2007 for 4,000,000,000 shares worth N25 each at 50K per share. The allotment was published two days ago which revealed that the offer was 105% over-subscribed.

My incursion into the banking sector has shown that many of the stocks are trading below their fair values such as Oceanic bank, UBA and lately Diamond bank. I have decided to take a cursory look at it to determine how valuable it will be to have it in one’s portfolio at this time.

Their gross earnings increased by 99.78% from N14.673 billion to N29.314 billion as shown in the 3rd quarter results for the period ended December 2007 that was released on the floor in January 2008. The profit before tax rose from N3.598 billion to N11.040, which was a 206.84% increase and the profit after tax increased by 206.82% from N2.448 billion to N7.511 billion. Based on the pre-offer 5.408 billion outstanding shares, the linearly projected year end earning per share comes to N1.85 meaning that at the current price of N25.70, the price earning ratio is 13.89. I used the pre-offer number of shares because the additional capital they raised in November 2007 would not have been deployed when they released the results. The return on equity increased from 0.90 to 2.78 based on the 3rd quarter results, which is a 206% increase.

Despite the fantastic financial results that was released by this company the share price had declined steadily after the results was released from about N30 to the present price. I guess investors are rather lackadaisical about this bank for reasons best known to them. I did not bother to invest in this company either, because I believe that their brand name is not strong enough.

Now that the price on the floor is at the same price at which the public offer came to the market, I believe that this will be a good time for investors to take advantage of the cheap price. It is going to be very difficult for it to go down any further, so the only direction now will be up since they are set to release their full year results for March 2008 any time soon. They are likely to declare a mouth watering dividend payout this year because of the good results they have been able to attain within the past one year, which will end up pushing up the share price from the level it is at the moment.

I believe that the conservative fair value of this stock is around N40.71 but the question remains. Will Afribank be able to hit that price within the next four months? Only time will tell.


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