Since December 20, the share price of Ecobank Transnational Incorporated (ETI) on the Regional Stock Exchange (BRVM) of the West African Economic and Monetary Union (UEMOA) has left its floor value of 13 CFA francs, on which it had been frozen for 18 months. The stock has since moved in a very volatile fashion. In the space of two months, the title has experienced variations of up to +100% (going from 13 F CFA to 27 F CFA), then equally marked declines, until returning in recent days to levels close to the floor price, with a last price quoted at 16 F CFA this Friday evening, March 5.
These erratic variations show the feverishness of investors and their difficulty in approaching the value of the leading West African banking group, leading to an irrational and disconnected valuation of the values attributed to similar banking groups.
If we refer to the return offered by the ECOBANK ETI share, for example, it is 3 times higher than that of the two other banking groups (CORIS BANK INTERNATIONAL and ORAGROUP) listed in Abidjan. The dividend of 0.9 F CFA that the Board of Directors has proposed to distribute in the coming months to the shareholders of ECOBANK ETI thus represents a yield of 5.62%, close to the coupon offered by a State security at 10 years of one of the WAEMU countries.
Yield (Dividend/share price)
CORIS HOLDING 1.78%
ECOBANK ETI 5.62%
ORAGROUP 1.52%
NB: The returns communicated by the BRVM for CORIS and ORAGROUP are based on the 2020 dividend.
By changing point of view and referring to the multiple of net income, the same observation can be made regarding the strong undervaluation of the ECOBANK ETI share compared to its “sisters”. ECOBANK ETI is only paid 1.5 times the profit for the year 2021, which is in absolute terms very little, while the CORIS share is paid 10 times its profit for the year 2020 and ORAGROUP more than 28 times its profit for the year 2020.
PER (Multiple of Net Income)
CORIS HOLDING 10.01
ECOBANK ETI 1.49
ORAGROUP 28.75
The PER analysis shows that ETI is undervalued.
In absolute terms, and independently of comparisons with other banking groups, the same observation of a decorrelated valuation of the financial situation of ECOBANK ETI can be made. Two elements are particularly notable:
– ECOBANK Côte d’Ivoire, only one of the 33 country subsidiaries of the ECOBANK group, has a stock market value of 247 billion CFA francs this Friday, March 5, almost as much as its owner group, whose value is 289 billion of F CFA. This means that the 32 other country subsidiaries would only have a value of 42 billion between them, while there are subsidiaries such as Ghana or Nigeria, whose sizes together greatly exceed the only subsidiary of Côte d’ ‘Ivory. By comparing the market value of the net equity of the ECOBANK group, we see that the group is only valued at 23.4% of its net equity calculated at December 31, 2022.
The disconnection of the market value of the ECOBANK group from its fundamental value is therefore intersected by several major aspects, both by comparison and intrinsically. The question therefore arises as to why such a disconnection takes place? Two major explanations can be given. – The first is that some investors probably fear that this payment of dividends in 2022 will only be an exception.
Before the payment which will take place in a few months, the shareholders of the ECOBANK group had indeed been “weaned” from dividends since 2016. over the years following the acquisition of Oceanic BANK in Nigeria. Today, the bad debt portfolio of the Nigerian subsidiary is properly provisioned and the rating agency Fitch even expects a return to better fortune for several debts of companies operating in the Nigerian oil sector thanks to the increase in the price of oil. The main consequence is in all cases that the ECOBANK group is called upon to resume its dividend distribution policy.
– The second reason is linked to the deferred effects of the BRVM’s decision to set a price floor at 13 CFA francs, on the rather surprising regulatory grounds that a downward variation of 1 additional CFA franc required a derogation from the principle of a daily variation limited to +/- 7.5%. The result is that the price was frozen at 13 CFA francs for 18 months and that investors were therefore “stuck” with their securities for those who wanted to sell them when the financial performance of ECOBANK TI was lower than that observed on the market. year 2021. The memory of this situation persists even though the financial situation of the banking group has become much better.
All in all, the combination of non-recurring events and an exceptional regulatory decision on the ECOBANK TI share led to a disconnection of the share’s value from the company’s fundamentals. The return of a significant structural profitability of the banking group (For each F CFA of activity carried out, ECOBANK has indeed generated approximately 0.25 F of net profit after tax in 2021) should fortunately offer the title ECOBANK ETI good prospects and allow it to recover its second capitalization status of the BRVM.
