Oceanic bank

This bank is one of the third generation banks that is pulling its weight in the banking industry in Nigeria. It has a large capital base and is known for its strong retail and investment arms, spinning off subsidiaries with almost reckless abandon, a sign of the twenty first century entrepreneur. It won the Bank of the Year 2006 and 2007, which was given to it by the Financial Times of London.

It is also known to be one of the best banks to work for in Nigeria.

Oceanic bank went to shop for money in 2007 and it was one of the few public offers that absorbed all subscriptions (Fidelity bank just released its allotment figures yesterday; although it was 233% over-subscribed, it was fully allotted). I have this gut feeling that this bank is going to be one of the best investments one can make in 2008. That has prompted me to take a closer look at it.

According to the un-audited 1st quarter result for December 31, 2007, that was made public, gross earnings experienced a growth from N12.5 billion to N30.4 billion indicating a percentage increase of 143%, profit before tax went up from N4.1 billion in 2006 to N10.4 billion in the same period in 2007 indicating a percentage growth of 154%, profit after tax stood at N8.4billion as compared to N3.4 billion which was recorded in the same period in 2006 thus indicating an increase of 148%.

Now, for the number crunching. The bank had 11.4billion outstanding shares when the result was released and therefore based on that, the EPS comes to 74K and the year end forward PE ratio based on the current price of N27.45 is 9.27. Now that is cheap!! If things continue like this, the real value of this stock should be around N65 going by the stock exchange average PE of 22.

That analysis is based on the pre-public offer values. Oceanic bank presently has about 22billion outstanding shares post-offer and based on that, the projected year end PE should be around 17.94 and therefore their fair value based on the additional shares is around N33.66. Now, that is not too exciting but it should be noted that they did not have the money from the public offer to work with during the first quarter and now they have more money to play around with and given their entrepreneurial penchant, I expect them to be able to make judicious use of it.

The figures show that Oceanic bank has very sound fundamentals and are set to create wealth for their shareholders. It will not be surprising if they come up with better figures.

Based on the number of shares that are exchanging hands on daily basis, investors are aware of the hidden value of this company. I believe that the price has been stable between N27 - N28 because of the selling pressure from investors who bought the public offer and I don’t expect the price to increase appreciably until we see their 2nd quarter results for March 2008, which will reflect the use of the money they raised during the public offer. I intend to buy this stock, which I believe is on discount at the current price once I get my return monies from the Aiico Insurance and Costain public offers, which I know will be massively over-subscribed or when I hit my target values from C&I Leasing, GTBank or International Energy Insurance.