Ecobank is undervalued but its Nigeria business continues to lag 

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Story highlights

  • Ecobank Transnational Incorporated has continued to deliver impressive results reporting a 63% year-on-year increase in pre-tax profit in 2023, followed by another significant 249% year-on-year growth in Q1 2024. 
  • Based on its price-to-earnings ratio compared to its peers, industry and NG market, its share price appears cheaper. 
  • Despite the overall success, Ecobank’s Nigeria business has lagged behind other regions, contributing minimally to the group’s performance.

Ecobank Transnational Incorporated’s (ETI) profit before tax rose to a 5-year-high of N263.524 billion ($581.362 million) in FY 2023, according to audited financial statements seen by Nairametrics.  

The banking group’s net revenue surpassed the $2.0 billion mark for the first time since 2015, increasing by 11% or 31% at constant currency to reach $2.1 billion in 2023.

This growth was particularly driven by the higher interest rate environment, especially in Anglophone West Africa (AWA) and Nigeria. 

Commenting on the result, Jeremy Awori, CEO of Ecobank Group, attributed the encouraging results to a re-energized commitment to putting customers first, revenue diversification, growth, and low-cost deposit mobilisation.  

He highlighted the bank’s proactive approach to disciplined cost management, aimed at eliminating unproductive and wasteful costs and redirecting savings into investments in marketing and branding, sales capabilities, and technology to drive future returns. 

Reflecting these efforts, the bank recorded a 20% year-on-year growth in pre-tax profit to $150.148 million (up 249% to N201.459 billion) in Q1 2024.

This represents more than half of the 2023 full-year figure, suggesting that Ecobank is likely to exceed its 2023 performance in 2024.  

However, amidst the group’s impressive performance, Ecobank’s Nigeria business has continued to trail behind other geographic regions.  

In the 2023 FY, the Nigeria business accounted for only 11% ($234 million) of the group’s net revenue, lower than the 12% contribution in 2022.

This trend continued in Q1 2024, contributing 8% ($36 million) to the group’s net revenue, the least among the regions  

Also, despite the higher interest rate environment in Nigeria, Ecobank Nigeria generated the least net interest income of $137.792 million among all regions and contributed only 4.6% to the Group’s pre-tax profit. This figure further declined to 2.47% in Q1 2024.  

Overall, a breakdown of the PBT shows that Nigeria’s business contributed only 4.57%, while Francophone West Africa (UEMOA), Anglophone West Africa (AWA) and Central Eastern and Southern Africa (CESA) contributed 54.77%, 38.49% and 49.31% respectively.  

Total assets and stock performance  

Despite the fluctuating performance in certain regions, the Pan African lender remains a formidable presence as one of the largest banking groups on the continent, outside South Africa, with total assets of $26.526 billion or N34.572 trillion as of Q1 2024, and subsidiaries spanning 33 Sub-Saharan Africa (SSA).  

This year the share price has maintained a bullish trend, recording a marginal H1 2024 year-to-date gain of 1.58%.

This is particularly noteworthy given the overall bearish stance of the banking sector, which has seen an average year-to-date loss of 2.55% in H1 2024 compared to a Q1 2024 average year-to-date gain of 19%.  

Focus on the Nigeria region 

Nigeria’s market is the largest in Sub-Saharan Africa and should hold the future potential for the Group. So, the need to focus on growing revenue, cost efficiency and digital payment systems should be highly prioritized.  

  • The region’s comparatively poor performance, particularly in nominal terms, continues to be influenced by low net revenue, elevated operating expenses, and an increase in net impairment charges on loans.  
  • Net revenues increased 3% or 40% in constant currency to $234 million, benefiting from higher interest rates and income from client-driven treasury services and solutions.  
  • Although there was an 8% decrease in operating expenses in nominal terms, in constant currency terms, there was a 31% increase in operating expenses to $176 million. This suggests that Ecobank Nigeria faced higher costs in 2023, despite the nominal decrease and that affected the region’s profitability.  This had an impact on the cost-to-income ratio. Although there was a slight improvement, reducing from 79.8% in the prior year to 74.9%, it remains higher than the group’s cost-to-income ratio at 53.9%, and a drag on the group’s earnings.  
  • The region’s Net impairment charges on loans have continued to grow. In 2023, the net impairment charges on loans grew by 88.2% to $32 million from $17 million in the previous year. This trend continued into Q1 2024, with impairment charges rising further to $5.6 million, up from $3.245 million, reflecting additional impairment charges.

Ecobank Valuation:  

Ecobank is currently attractively priced with several key valuation metrics indicating potential undervaluation.  

  • Firstly, it boasts a lower trailing price-to-earnings (P/E) ratio of 1.2x compared to the banking sector’s average of 2.1x, suggesting the stock may be priced lower relative to its earnings.  
  • Additionally, the enterprise value to EBITDA (EV/EBITDA) ratio stands at 0.56, meaning investors pay N0.56 for every Naira of EBITDA generated annually by the bank. This relatively low ratio typically indicates that Ecobank’s valuation might be considered inexpensive or undervalued based on its earnings before interest, taxes, depreciation, and amortization.  
  • Its price-to-book (P/B) ratio of 0.35 suggests that the market values the bank at 35% of its book value per share, implying potential undervaluation based on its asset value.  
  • Similarly, the trailing twelve-month price-to-sales (P/S) ratio of 0.12 indicates that investors pay N0.12 for every Naira of sales generated by Ecobank over the past year, suggesting the stock may be undervalued relative to its revenue generation.  

However, a thorough analysis of market conditions, industry trends, and risk factors is essential before making investment decisions. 

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