Ecobank vs. Sterling bank
These two banks share prices were placed on a technical suspension for over six months when they were into merger talks. Ecobank was frozen at N7.95 per share and Sterling bank was on N7.28 per share. During this period I quietly accumulated some shares of Sterling bank because Ecobank was simply not available. The technical suspension was lifted recently and Ecobank went up and Sterling bank went down on the same day. Ecobank was able to hit the N10 mark before heading back down. Both banks have ultimately sustained price levels above the technical suspension price, for now.
I have decided to take a closer look at both banks to determine which one has better prospects for a fundamental investor like myself. They both released their results on the floor of the NSE almost within the same time frame. Ecobank released first quarter results for the period ended March 2008 and Sterling bank released their half year results for the period ended March 2008. I don’t know what plans both banks have regarding the CBN directive for all banks to have a uniform year end from December 2008.
Ecobank grew turnover by 72.52% from N6.58 billion to N11.355 billion while Sterling bank grew their own turnover by 79.21% from N9.204 billion to N17.391 billion. Profit before tax for Ecobank was up by 24.68% from N2.058 billion to N2.566 billion and Sterling bank raised theirs by 177.65% from N1.329 billion to N3.69 billion. After tax profits for Ecobank increased by 24.73% from N1.399 billion to N1.745 billion and Sterling bank was able to make theirs a whopping 177.07% from N1.112 billion to N3.081 billion. Sterling bank has been able to their half year results to beat their full year results for September 2007.
The first question I would like to ask was the reason the profit margin for Ecobank dropped while that of Sterling bank in contrast rose astronomically whereas their turnover was about the same. Is it that Ecobank has made some investments that I am not aware of? I know they have entered into a public-private partnership with Lagos State Government to run some public transportation business. Sterling bank has also invested about $20 million into the purchase of some vessels, as they have targeted the maritime industry. We will see as events unfold.
Ecobank presently has about 21.654 billion units of shares on the floor, which brings their projected earning per share to 32K based on their first quarter results. This is in contrast to Sterling bank with 10.553 outstanding shares, which has a projected earning per share of 58K. The results released go a long way to show that Sterling bank at the moment though not as powerful as Ecobank when the rough earnings are compared but have they better fundamentals and have more potentials to generate more wealth than Ecobank.
This analysis shows that the fair value of Ecobank is N7.04 while that of Sterling bank is N12.76 but as at today Ecobank is N9.08 in the market meaning that it is selling at 22.47% above its fair value while Sterling bank, which is N7.58 is currently at a 68.34% discount.