LIVINGTRUST MORTGAGE BANK PLC
| Ticker: LIVINGTRUST | Nature of Business: Mortgage Carriers, Brokers and Services | Location : Nigeria |
| Recent Price: NGN1.14 | 52-Week High/Low: NGN1.14/0.62 | Estimated Fair Value: NGN0.60-NGN0.80 |
| Expected Return: 30.5% | Consider Buy: Below NGN0.70 | Business Risk: Average |
| Financial Risk: Average | Economic Moat: Weak | Corporate Governance: Average |
Company Overview
LIVINGTRUST MORTGAGE BANK PLC (LIVINGTRUST), formerly known as Omoluabi Mortgage Bank Plc, began as Osun Building Society Limited in 1993. The bank was privatised in 2013 and listed on the Alternative Securities market (ASeM) of the Nigerian Stock Exchange in 2014. It migrated to the Growth Board of the Nigerian Stock Exchange in 2020. The government (Osun State government and the local government councils in Osun State combined) still controls 40% of the company. Cititrust Holdings Plc is the major single shareholder with 59.8% of the outstanding shares.
LIVINGTRUST provides mortgage finance, property construction finance and banking services. The oversight function of the bank is carried out by a ten-man board of directors which is chaired by Mr. Adebayo Jimoh. Mr. Adewole Adekunle is the managing director of the company..
Investment Thesis
LIVINGTRUST is a primary mortgage institution in Nigeria. It enjoys the financial support of the Federal Mortgage Bank of Nigeria (FMBN) by procuring loans which it lends to qualified National Housing Fund (NHF) beneficiaries. We expect this to boost the company's capacity to grant more loans as the government embarks on creation of more housing units in the country by injecting more funds into FMBN. The company disbursed NGN597.6 million NHF mortgage loans in 2020 compared to NGN379.2 million in the previous year. This was 14.2% of total loans disbursed (2019: 20%).
Gross earnings have gained 8% on a 3-Year Compound Annual Growth Rate (CAGR) basis. Gross loans have grown by 61% over the past three years while deposits have expanded by 28.7%. Profitability has also improved. The company has consistently made a profit for five straight years. LIVINGTRUST is low-geared and non-performing loan ratio was more or less flat at 10%. The establishment of the Nigeria Mortgage Refinancing Company (NMRC) has boosted liquidity and lending by refinancing mortgage loan portfolio. Having invested NGN100 million in NMRC, LIVINGTRUST has benefited through improved liquidity. The company’s indebtedness to NMRC was NGN63 million at the end of the 2020 fiscal year.
The bank is adequately capitalised. But returns are low. Both Return on Average Equity (RoAE) and Return on Average Assets (RoAA) averaged 4% and 2.5% respectively. In addition, shareholders have not been receiving dividends regularly. The company’s performance is getting better; however, it is trading above our fair value estimate. Therefore, we recommend a hold.
Valuation
Book Value Per Share (BVPS) averaged NGN0.49. It is trading at 2.3 times average BVPS and 14.3 times average sales per share. LIVINGTRUST is worth between NGN0.60 and NGN0.80 per share. Total return on a share of the bank is expected to be 30.5%.
Financial Overview
Gross earnings grew by 29.9% against the backdrop of a huge leap in interest and similar income. Interest and similar income grew by 67.1% to NGN374.1 million. Net interest income increased to NGN321.4 million from NGN173.5 million owing to a huge rise in interest income. Rising interest income coupled with a slower growth in interest expense resulted in a net interest income rise. Net interest margin of 49.2% was produced in 2020 as against 34.5% in the preceding year. Interest on borrowings accounted for 66.6% of the total interest payments in the year under review (2019: 59.9%).
Both Profit Before Tax (PBT) and Profit After Tax (PAT) more than doubled in a year; PBT and PAT closed at NGN151.4 million and NGN132.4 million respectively, gaining NGN94.1 million and NGN69.8 million in that order. Shareholders' fund got better by 4.8% in 2020 compared to 2.4% in the previous fiscal year. Total assets jumped to NGN6.3 billion, gaining 37.1% year-over-year.
Gross loans of NGN4.2 billion was tantamount to a 122% year-over-year expansion. Provision for impairment on gross loan ratio has been on the decline; it dropped from 27.3% to 3.2% in five years. PBT margin of 23.2% in 2020 was a 11.8% improvement over the prior year's figure. In the same vein, PAT margin rose to 20.3% from 12.5%. Return on Average Assets (RoAA) improved by 0.9% to 2.4% while Return on Average Equity (RoAE) gained 2.3% to 4.7%.
Loans are growing faster than customers’ deposits with gross loans to deposit ratio rising from 157% to 160.9%. Though it grew by 17.3% year-over-year, total debt accounted for 23.3% of shareholders' fund and 10.3% of total assets. LIVINGTRUST has a total debt of NGN646.1 million at the year 2020 year end. It owed the Federal Mortgage Bank of Nigeria NGN583.1 million or 90.2% of total debt.
Business Risk
Default risk impairs asset quality and liquidity. Impairment allowance on loans was NGN136.5 million (3.2% of total loans) in 2020 compared to NGN96.9 million (5.1% of total loans) in the previous period. The bank's ability to attract cheap long-term finance would improve its net interest margin going forward. In addition, extending its services to other states (apart from Osun State) in Nigeria should help improve its earnings and spread its risk.
Recommendation: Hold
