Quote:
Originally Posted by pumping
Interesting arguement. I very much see your point and I appreciate your logic.
The problem is that this theory is too simplistic. More relative cash injection or working assets is not the only competitive advantage in Banking. The brand name of UBA alone is sufficient to make that irrelevant. What I mean is that we cannot look at only one side of the coin. There are other factors involved. When a solid bank like UBA has better fundamentals than a bank like Skye, you should know where to put your money. It is UBA that should be trading at a premium PE and not Skye.
For instance using the arguement above, Sterling Bank, Unity Bank and Ecobank should be the hottest stocks in the banking industry since they are so lowly priced. Do you think these are the banking stocks that will give the highest return this year? As you earn, so will the market price you.
Most of these small companies that blow up their prices becuase of POs will soon get to the point where they cannot maintain those prices. You just saw Access Bank. When I was selling Access this week folks were screaming about the results coming out. After declaring 3.1B PAT Q-1, they now come out with N4.81B in Q-2.
Yes, UBA's appreciation has been low since the PO but note that their PAT was hit with extraordinary items and the fact that there was no bonus issues turned investors off.
This is not an arguement though. I appreciate your point of view. I'm just making mine clearer.  |
Senior member Pumping: I very much appreciate gentlemen debate as they say iron sharpen iron. As I now be member I need to sharpen up to become senior member too.
Simplistic Theory: That's how most great things get built up like the way Isaac Newton started the laws of Mechanics. Most Banks Raise more money to make them more profitable as this is the easiest path to growth especially if the money is deployed in such a way that it attracts more Money. You can see how it works from the following illustration. [If Bank A has 100 shares of N4 each, and Net Assets per share of N2. Its capitalization = N400 and Net Assets (or Shareholder Funds) =N200. Assuming average performance of net assets after Tax is 10% then PAT = N20, PE = 20 and P/B =2. Assuming instantly at beginning of its next year it pays all PAT as dividend and raises 50 more shares via a PO. And the performance of this new year remains same in utilization of assets then, this new year end performance will be Capitalization N 600, Net Assets N400, PAT N40, PE 15, P/B 1.5. The more the new capital injection relative to current capitalization, the more the improvement of PE and P/B assuming efficiency levels remain same.
UBA Brand Name / Solid Bank: See this thread.
[url="http://http://www.nairaland.com/nigeria/topic-104490.0.html"]
Sterling Bank, Ecobank, Unity Bank cannot be the hottest primarily on a price consideration. You need to look at full picture. P/E and PB will help you see better. I will quote these numbers according to IBTC research.
Bank #Shares PE P/B
Skyebank 7503044788 20 3.6
UBA 11290279980 17 2.6
Sterling 10552847632 76 ???
Ecobank 21654226926 48 5.9
Unity Bank 14736894670 39.6 4.4