Sterling bank

Selected Indices
Sector: Banking
Current Price: N6.60
Shares outstanding: 10.55 billion
Market Cap: N69.63 billion
PAT: N4.6 billion
Projected PAT (FY): N6.1 billion
EPS: 44K
Projected EPS (FY): 59K
Forward PE: 11.38x
Liquidity: Medium

Analyst opinion
Sterling bank is one of the middle tier banks in the banking industry and one of the least four capitalized banks. I analyzed this company just before the end of the botched merger plans they had with Ecobank. The bank’s shares have been yanked off the floor of the Nigerian Stock Exchange for a share reconstruction, which was supposed to last for two weeks but has already entered the third week. There no information about the reconstruction schedule but there are feelers out there that this exercise will herald a public offer, which they intend to float to increase their capital base.

I arrived at a conclusion back then that it was good to buy and have decided to revisit it after the nine months result they released a few days ago.

The result show a 69% growth in turnover from N16.011 billion to N27.094 billion from the corresponding period of the previous financial year; the profit before tax jumped from N3.01 billion to N5.747 billion within the same period indicating a 90% increase; the profit after tax grew by 84% from N2.468 billion to N4.597 billion.

The figures show that there was an increase in taxes paid, which must have been due to deferred taxes and they have also been able to manage their costs much more effectively that they did last year. There was a reduction in PAT growth compared to last quarter but this company can still be classified as a growth company based on the high double digit growth, which can be offset by the triple digit growth in the first and second quarters.

The result show that this company presently has an earning per share of 44K, which gives a linearly projected earnings of 59K per share, which is in consonant with the projected earnings of 58K that I made from their half year result. This is based on 10.55 billion shares in issue ultimately leading to a forward price earning multiple of 11.38x at a pre-reconstruction market price of N6.60 per share.

The fair value of Sterling bank based on this result stands at N12.18 and it is still a good buy, just as I had recommended before.