Wema Bank Plc

WEMA BANK PLC

Company Overview
The existence of WEMABANK dates back to May 2, 1945 when it began banking business as a private limited company, Agbomagbe Bank Limited. It changed to a public company in April 1987. Thereafter, its shares were listed in January 1990 for various investors to have access to its shares. In 2005, WEMABANK acquired National Bank of Nigeria Plc. The company has been authorised to carry out commercial banking nationwide in November 2015, having divested from its non-banking businesses. It used to be a regional bank serving South-South, South-West and FCT.

Mr. Adeyinka Asekun is the chairman while Mr. Segun Oloketuyi is the managing director of WEMABANK. Mr. Nurudeen Fagbenro,executive director, retired from board in June 2015 after 27 years with the bank.Also, Mr. Babatunde Kasali retired on November 12, 2015.

Investment Thesis
Net interest margin shed 4.5% compared to a rise of 48.1% in 2014. The bank raised interest on deposits to attract funds that can be loaned out to borrowers. It is hoped that this will reduce its indebtedness and debt service obligations. Also, it will improve liquidity. Deposits are increasing and more loans are been given.

Since the bank’s toxic assets were purchased by Asset Management Corporation of Nigeria (AMCON), there has been a remarkable progress by the management to shore up its capital and improve profitability. Profit after tax has been improving since 2012 when the bank made a loss after tax of NGN5 billion. In 2015, it made a profit of NGN2.3 billion (2014: NGN2.4 billion, 2013: NGN2.4 billion). In the same vein, total assets have grown by 17.3%, deposits have grown by 17.8% and loans by 30.9%. Gross earnings have been increasing by 14.2% annually over the past three years.

Credit loss provision by the bank has been lowered to 1.7% compared to a 4-year average of 9%. We opined that this may rise as the bank seeks to raise its earnings by growing its loan portfolio.

Also, we expect costs of operation in relation to gross earnings to continue to drop in order to sustain profitability. Management should not sit on its laurels. The company may become liable to liquidity problem if management relents.

WEMABANK is not immune to the sluggish economy. Quarter 1 result to 31st March 2016 showed 17.9% PBT decline. Net interest income was more or less flat at NGN4 billion. Total assets lost 9.2% while shareholders fund diminished by NGN405.3 million.

Valuation
A share of WEMABANK is estimated at a value between N1.20 and NGN2.00. A return of 60.4% is expected in three years’ time.

Financial Overview
Interest income swelled by 4.7% compared to 24.2% of a year ago; this increment was largely driven by 40% surge in interest on customers’ loans and 53.4% fall in interest on investment securities. Suffice to say that the greatest component of interest income is interest on loans from customers.

Revenue increased by 8.6% while PAT lessened by 1.9%. PBT also declined by 1.6%.

Cost of operation forms 51.1% of gross income compared to 52.4% of last year. Net interest margin moved down to 38.7% from 44%. Both PBT and PAT margins witnessed marginal decline in the year under consideration. Returns are low; RoE and RoA were 5.1% and 0.6% respectively.

Non-performing loans ratio have dropped to 1.4%. This could be a result of targeting more corporate customers since they have less risk of default.

WEMABANK is adequately capitalised. Capital adequacy ratio of 15.1% is higher than the regulatory requirement of 10% for a national bank. However, this was 18.2% the previous year.

WEMABANK has a debt of NGN52.3 billion which translate to over 100% of shareholders fund but only 13.2% of total assets. Its liquidity ratio surpassed the regulatory requirement.

Business Risk
WEMABANK has no competitive advantage in the industry. It cannot ward off competitors from eating into its earnings.

Recommendation: Buy

 

Vital statistics of Wema Bank