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Cheaper Funds, Shareholder Value motivates Sterling Bank’s Rights Issue

Category: Public Offers Private Placements

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Cheaper Funds, Shareholder Value motivates Sterling Bank’s Rights Issue


Wednesday, July 03, 2013 3:36 PM / TheANALYST

“The share price of Sterling Bank Plc out-performed the market in the last 18months as our extensive trend analysis reveals significant margin between the two.  The YTD performance of the key benchmark indices stand at +28.80% against the +53.18% Sterling Bank recorded as at 28th of June 2013. Also the All Share Index closed the year 2012 with +35.45% appreciation against the +71.29% uptick recorded by Sterling Bank’s share price”.

Sterling Bank Plc is set to offer N12.5billion Rights Issue to shareholders in order to build upon the impressive performance thus far, and from the analysis conducted thus far - to expand its business operations and invariably improve its bottom-line and returns to shareholders, relative to the opportunities in the market.

Considering the general knowledge about most rights issue on offer to date., it may be trite re-echoing that most offers are borne out of the need to fix balance sheet problems or specifically, to recalibrate debt positions that may have slowed down the growth potential of such entities. Our market ‘rights offer’ history encourages therefore the need for investors to understand the motivations, purpose and utilisation of proceeds set out, consequential returns arising therefrom; and the opportunity cost of the decision they have to make. This we have attempted to provide in the snapshot below.

Download the Rights Issue FAST FACTS HERE

Fundamental and Investment Analysis
A fundamental and investment analysis of reveals a scalable and impressive operating efficiency and cost management - pointing to healthy margins and returns to shareholders of the security. There exists however, concerns about the bank’s bottom-line posture; this position is influenced by the Q4 ’12 bottom line which closed with an unimpressive posture.  



The unimpressive trend and significant weakness observed in the Q4 '12 PAT performance of the bank needs to be understood, if only to explain away concerns about future profit margin erosion.



Significant to the analysis however must be the impressive top-line posture of the bank which came in more alive than previous postures recorded in the comparable period. We commend the improvements and expects it to maintain a steady level here.



The returns on both assets and equity closed weaker - an indication of weakness in the income stream of the bank (as observed with its bottom-line).



The bank returned an improved EPS posture which signifies a healthy posture of the earning assets of the bank (contributing immensely to the EPS growth of the bank).



The above indicators will indicate that it can sustain its growing market share and penetration within the industry; at no significant cost to its earnings.

Forecast in Focus 


The expansion strategy and initiatives of the bank, which reveals realistic and organic growth of the bank with the intense focus towards adding values to shareholders stake in the long term – rekindles the optimism generated by the projected EPS which suggests a 25% EPS growth at the end of current financial year; and expected to surge to 134.09% at the end of 2015 financial year. The expected EPS growth rate is projected at an average of 39.42% for the next 4years.

Price and Peer Analysis
Further analysis into performance within the industry reveals that the share price of the bank remains impressive; and above the sector’s average performance at the close of session on 28th June 2013 - indicating strong positive sentiments towards the stock. This could however not be isolated from the undervalue posture of the stock among its peers.


The current posture of the bank as regards to key financial components remains impressive, comparable to its peers. The bank’s Gross Earnings growth stands at +22.4% at the end of the Q1 ’13 with a robust bottom-line growth of +96.04%, a better posture when compared with the +3.99% recorded in Q4’12. This allays the fears of analysts and investors as regards the weakness observed above over the earnings stream of the bank.



Price Trend and Market Sentiments  

Market sentiments reveals that rights issue (in general) continues to attract more interest and support from investors and shareholders, recording more demand as reflected in the daily average volume traded with a corresponding northward trend in price as at July 1st 2013.

The Technical analysis of the equity reveals that the share price of the bank closed bullish in the long term period and remained neutral in the short term period, trading significantly above its 200days moving average; but closed at par (N2.65k) with its short term moving averages of N2.65 and N2.66 for 20days and 50days moving averages respectively.



In addition, the price trend analysis further revealed an impressive uptrend in the last 18months (January 2012 to June 2013) with moderate price volatility; as the stock experienced and sustained steady and consistent bargain tendency from both investors and shareholders.


In the year 2012, the share price of the bank appreciated by 71.29% on the back of a strong investors’ patronage and shareholders loyalty. So far in the current year, the stock price had appreciated by +53.18% with growing demand as reflected in the daily average volume traded.


OBSERVATION: The share price of Sterling Bank Plc out-performed the market in the last 18months as our extensive trend analysis reveals significant margin between the two.  The YTD performance of the key benchmark indices stand at +28.80% against the +53.18% Sterling Bank recorded as at 28th of June 2013. Also the All Share Index closed the year 2012 with +35.45% appreciation against the +71.29% uptick recorded by Sterling Bank’s share price.

Impact of Rights Issue  


The Investment Case
At the current trading price of bank at N2.65kobo, with the possibility of succumbing to sell pressures, the 20% discount on offer (which is subject to market volatility) is fair but not an ‘attractive pull factor’. 


Analyst Opinion 

Going by the forecast and the projected EPS growth of average of 39.42% for the next 4 years, fuelled by the anticipated improvements in earning assets; a ‘take or trade’ recommendation is worthwhile; save for any distortions towards to the EPS growth falling short of the projected 25% by end of this current financial year.

The case can be made that buying into other value stocks which enjoy stronger investors’ loyalty would suggest a better investment opportunity in the short term, considering the time value of money and other unforeseen risks involved in a rights issues. Yet it must be said that the bank’s investment ratios are not in any shape that should factually discourage an investment or taking up of the rights.

Download the Rights Issue FAST FACTS HERE

Download the CIRCULAR HERE 

Editors Note: This is an adjusted version of the snapshot published yesterday after comments related to disclosures omitted have since been corrected situated in the prospectus and fast facts above. Comments relate to the treatment of the 2014 maturing debt of N14bn owed Citibank for which the bank has made representations on.


Disclaimer/Advice to Readers:
While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the author’s best estimate judgment as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This information is published with the consent of the author(s) for circulation in/to our online investment community in accordance with the terms of usage. Further enquiries should be directed to the author whose e-mail is  

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