Oceanic Bank Revisited

I published a post about Oceanic bank a few weeks ago when the price was struggling around the N27 - N28 band (http://myequitymarket.blogspot.com/2008/03/oceanic-bank.html). I have decided to revisit it based on the newly released 2nd quarter results.

The most entrepreneurial bank in Nigeria released their 2nd quarter results for the period ending March 2008 on the floor of the Nigerian Stock Exchange a few days ago, which caused a sudden upward swing in price of the stock. The stock has been gaining maximum points everyday since then. As at yesterday there were unfilled bid of over 75 million shares at the end of the trading session but no one knows how long the bull run will last because the stock was able to bag only 1.67% gain, which happened probably as a result of massive selling pressure from investors who were offloading after verifying their public offer shares.

The results were superlative and is the best released so far by any bank in 2008. A cursory look at the financials revealed an increase of 128.6% from N29.077 billion to N66.472 billion from the previous corresponding 2nd quarter results. The profit before tax rose from N9.974 billion to N25.063 billion which translated to a 151.28% increase while profit after tax jumped by 145.24% from N8.278 billion to N20.301 billion. They paid only 19% in taxes instead of 30%… does that mean that they have deferred their taxes for another period? That’s one question I need an answer to.

They increased their outstanding number of shares by almost 100% and they made returns of 145%; this means that the fund they raised was well utilized and they are yet to get to the peak of their marginal revenue. This assumption is buttressed by the increase in returns on equity by 28% from 1.45 to 1.85 within such a short period of getting the funds based on the 2nd quarter results.

Based on the financials I will expect their forward price earning ratio to come to about 16.54 at the current price of N30.60. I expect their fair value to be around N40.70, which I believe is a conservative figure.

Despite the selling pressure, I still believe that Oceanic bank is a very good buy at the current price.