SCB is a buy

Standard Chartered Bank (SCB), continues to be successful at increasing shareholder value. Over the past 5 year period, the company’s return on asset (ROA) and return on equity (ROE) stood at an average of 5.19% and 30.82% respectively.

In 2017, its ROE increased to 30.8% from 29.3% in 2016. ROA increased from 5.13% in 2016 to 5.94% in 2017. The company’s non-performing loan ratio (NPL) which indicates the quality of its loan portfolio over the past 5 years has averaged at 33.28. For the 2017 financial year, SCB’s NPL’s declined to 35% in 2017 from 45% in 2016 showing some improvement in its asset quality.

 

The level of NPL’s however is still high compared to the industry average of 21.6% and SCB must continue strengthen its risk management to minimize credit risks. In terms of cost efficiency, the company’s cost to income ratio increased to 36% from 31% in 2016. The 5 year average of the cost to income ratio is 28.6% signaling that the company needs to improve its operational efficiency.

 

SCB’s capital adequacy ratio increased from 21.59% in 2016 to 26% in 2017 indicating an improvement in its solvency. The 5 year average for the capital adequacy ratio is 20.43%. The banking industry in Ghana has undergone significant regulatory changes in the bid to maintain the soundness of the financial system.

 

The raising of the minimum capital requirement from GHS 120 million to GHS 400 million is expected to improve banks’ solvency. The recently released directive on corporate governance is also aimed at minimizing the possibility of bank failures. The government has also made efforts to reduce the non-performing loans in the industry which stood at GHS 8.3 billion Cedis as at October 2017. It is anticipated that these developments will position the bank to grow its earnings.

 

SCB between 2012 and 2016 has maintained the payment of dividends averaging at GHS 0.74. In terms of capital gains, the company’s share price has appreciated significantly and has rewarded investors with a YTD return of 38.81% in 2018. Based on the current valuation of SCB, its intrinsic value has been pegged at GHS 38. SCB is a good buy.  The Composite and the Financial stock indices increased by 0.77% and 1.15% to peg at a YTD return of 29.19% and 32.28% respectively.

Trading activity ended with 3 gainers [ACCESS, SOGEGH & CAL] and 1 loser [FML]. PBC topped the charts in terms of volume as 687,500 shares worth GHS 27,500 changed hands.

 

On the Ghana Alternative Market, Trading activity on the Ghana Alternative Market was hushed as no shares changed hands.

On the Currency market, the Cedi appreciated marginally against the British Pound and the Euro at the end of yesterday’s trade. The Cedi to Dollar exchange rate remained stable. The local currency exchanged at a mid-rate of GHS 4.4044 to the USD, GHS 6.2144 to the GBP and GHS 5.4397 to the EURO. The GCFM Cedi index, a measure of the holistic performance of the Cedi on the interbank market now records a year-to-date depreciation of 1.39%

 

Source: GN Research

Leave a Reply

Your email address will not be published. Required fields are marked *