Union Homes Savings and Loans
Union Homes Savings and Loans Plc is presently the only company under the Mortgage sector on the NSE. Intercontinental Homes Savings and Loans and Spring Mortgage just finished their private placements early this year and they both have plans of getting listed before the year runs out, so hopefully the sector will become more competitive and a yardstick will be available to compare their performance as the sector matures.
There is this pervading fear that the stock exchange may crash at anytime because of the high valuations of the listed companies regarding their pricing especially the penny stocks. There are other optimists who believe that the market will not crash but will only ebb and slow down for a long time while earnings catch up with price and then there will be another boom. Be that as it may, it is time to thread carefully and to always keep at the back of our minds as we buy these paper assets that that is all they are, paper assets. The papers can get blown away at anytime by the strong wind of circumstances. Hopefully, the expansionary budgets will not allow this phenomenon to happen soon. So I am still quietly optimistic.
This is Nigeria and opportunities abound to make money because we are still a growing economy. We are yet to scratch the surface of mortgage and real estate development in Nigeria, considering statistics that keep telling us that we have a serious deficits of houses, and I have this strong feeling that the next wind of abundance will blow from that direction when the stock boom is over.
This brooding has made me look towards Union Homes Savings and Loans. This company is a subsidiary of Union bank and they seem to be latching on to their large net worth clientele who need mortgage services. I hope these companies will consider small investors like us in the nearest future.
Union Homes floated a rights issue in October 2006, which effectively increased its number of shares from 2 billion to 5 billion units. They released their 3rd quarter results for December 2007 on the floor of the NSE in January this year. The results showed that they grew their turnover by just 2.6% from N5.451 billion to N5.592 billion from the corresponding quarter in 2006. The profit before tax grew by 98% from N864 million to N1.711 billion while their profit after tax grew by 83.7% from N719 million to N1.32 billion.
They obviously invested the money they raised in 2006 into making their processes more efficient by reducing the cost of services and goods based on the disparity between the growth of their turnover and profits declared. Their returns on equity dropped from 0.86 to 0.68 over the same period, which means that they have not been able to maximize the money they raised as the increased number of shares has affected their ROE.
There are speculations that they want to raise more money from the market soon. That does not make a lot of sense to me, going by their financials except they used the money they raised in 2006 to pay off some liabilities, because adding additional shares will only reduce their ROE further and lower their EPS. Anyway, I will have to wait to see their annual report before I can make my final conclusions.
At the current price of N8.97, their projected year end PE for March 2008 comes to 25.63 based on an EPS of 35K. It means that the company is already trading at its fair value and there may not be any significant rise in price when they release their full year results except it beats the projected earnings.