Analysts Weekly Markets Update Wilfred Agyei Kofi Busia Kyei Rudolf Cofie Tel: +233(0)302 251137 Website: www.umbcapital.com Our Opinion: SELL FEATURE FOR THE WEEK Ecobank’s full year profit declines by 21.56% Return on Equity (DuPont) Performance on the Stock Market 40.00% 37.18% Ecobank Ghana started 2017 at GHS6.40 and appreciated to GHS7.60 (as at 35.00% 34.19% December 2017), translating to a gain of 18.75%, reflecting positive sentiments 30.00% towards the banking giant. The 18.75% gain is better compared to the -8.70% 25.00% 24.87% and -7.76% recorded the same period a year ago and in 2015 respectively. 20.00% It has posted a 52-Week-High of GHS8.05, and a 52-Week Low of GHS6.40, 15.00% Wilfred Agyei with a PE Ratio of 8.74x, with an average price of GHS7.24 over the past 200 10.00% [email protected] days. 5.00% Trading activity has been brisk; a total volume of 3,395,200 shares of the bank 0.00% 2015 2016 2017 exchanged positions during 2017, this is higher than the 1,268,288 shares traded during 2016. Total value of shares traded amounted to GHS22,799,190 significantly higher than the GHS8,607,580 recorded in 2016. Return on Equity fell from 34% to 25% due to the sharp decline in the Net Profit Margin from 37% to 29%. Common Size Analysis FINANCIAL STATEMENT SUMMARY Proportion of Interest income 2017 2016 2015 100.00% INCOME STATEMENT GHS 000 GHS 000 GHS 000 81.92% Interest Income 885,483 878,914 790,961 80.00% Net Profit 255,384 325,594 327,523 64.36% 66.00% 60.00% BALANCE SHEET 41.41% Total Assets 9,098,692 8,025,510 6,587,487 37.05% 40.00% Total Liabilities 8,071,894 7,073,302 5,706,459 20.19% 28.84% Total Equity 1,026,798 952,208 881,028 17.78% 20.00% 15.87% FINANCIAL RATIOS 0.00% Liquidity &Efficiency Interest Expenses Operating Expenses Profit After Tax Current ratio Cost to income (%) 52 47 44 Net interest Margin (%) 27 29 34 FY 2015 FY 2016 FY 2017 Profitability Net Profit Margin (%) 29 37 41 Interest Expenses as a proportion of Interest Income reduced marginally Return on Assets (%) 4 6 6 from 20.2% to 17.8% in 2017, despite the 20% increase in deposits. This could Return on Equity (%) 25 34 37 be attributed to recent declines in interest rates, reflected in the lower money Investor Ratios market rates. Net Interest Income increased marginally by 4%. Earnings per share 0.87 1.11 1.12 Dividend per share 0.82 0.84 Operating Expenses rose marginally by 3.3% in 2017. Correspondingly, Price Earnings ratio 8.74 5.77 6.26 Operating Expenses as a proportion of Interest Income increased marginally from 64% to 66%. Asset Quality Capital Adequacy (%) 12.57 14.74 17.13 Profit after Tax as a percentage of Interest Income fell from 37% in 2016 Non-Performing Loans 12.04 11.90 16.56 to 29% in 2017 as a result of the 22% decline in profit. ratio (%) The fall in profit was driven by the 7% decline in revenue, and 8% increase in personal expenses which saw operating profit drop by 22% which subsequently affected overall profit. Supplementary Analysis Efficiency 35.00% 29.76% Cash Flows 30.00% 24.53% 25.00% 1,000,000 800,032 800,690 20.00% 17.94% 15.00% 500,000 10.00% 209,280 134,173 5.00% 1.08% 1.52% 1.02% 0 0.00% Gross Yield on Earnings assets Cost to Funds Ratio -175,986 -317,554 -283,138 2015 2016 2017 -500,000 Gross Yield on Earnings Assets declined from 25% in 2016 to 18% in 2017, -383,162 which is traceable to the relatively higher growth in earnings assets compared -1,000,000 to interest income growth. (Earnings Assets grew by 12% in 2017, while interest income increased marginally by 0.74%). -1,500,000 Cost to Funds Ratio declined by 33%, reflecting the 21% increase in -1,485,102 customer deposits and the 13% increase in bank deposits. 2015 2016 2017 -2,000,000 Net Cash generated Net Cash used in Net Cash used in Average collectionof interest on loans and from Operating Investment Activities Financing Activities advances Activities 140 Net Cash Flows from Operations increased marginally from 120 120 GHS800 Million in 2016 to GHS800.69 Million in 2017. 100 Net Cash used in Investing Activities increased from GHS317.55 93 92 Million to GHS1.49 Billion, mainly driven by the GHS1.46 Billion 80 investment in government securities. Days 60 Overall, Cash and Cash equivalents declined by 44% from GHS2.1 40 Billion to GHS1.2 Billion in 2017. 20 Conclusion 0 From our review, Ecobank’s Balance sheet and Income statement for 2015 2016 2017 the period ending December 2017 compared to December 2016 has not been resilient, as reflected in weaker profit growth, declined growth in interest income and revenue, as well as sharp falls in the Net Margin and Return on Equity. Activity in EGH shares continue to be supported by sustained positive investor sentiments. EGH is currently trading GHS11.60 which represents a 52.6% yield Y-T-D. Based on our model, we estimate the year-end price of Ecobank to average between GHS8.11 to GHS 8.84; therefore we rate Ecobank as a SELL. 2 Gainers Decliners INVESTMENT TERM OF THE WEEK Kofi Ticker Price (GHS) Change Ticker Price (GHS) Change SPL 0.03 50.00% FML 17.58 -0.06% Stock Symbol (Ticker): An alphabetic root symbol, which representsB. Kyei a PBC 0.05 25.00% TOTAL 4.97 -0.60% publicly traded company on a stock exchange. An example of a stock Listed Kofi B. Kyei MLC 0.08 14.29% EGH 11.60 -0.77% on the Ghana Stock Exchange is Ecobank Ghana Ltd whose stock symbol is PZC 0.28 12.00% EGL 4.89 -1.41% EGH. Kofi B. Kyei SOGEGH 1.90 11.76% HFC 1.17 -2.50% EQUITY MARKET PERFORMANCE Top traders Indicator This week Previous Change Y-T-D INDICATORS Ticker Volume Value Week SPL 1,620,700 14,106 GSE Composite Index 3,309.93 3,336.63 -26.69 28.31% SIC 250,780 1,217,126 GSE Financial Index 3,066.50 3,113.65 -47.15 32.72% GGBL 249,425 1,845,788 ACCESS 95,100 88,855 Market Cap (GHSM) 65,397.85 66,169.98 -772.14 SOGEGH 92,720 312,171 Value Traded (GHS M) 3.96 7.72 -3.76 TOTAL 89,273 198,199 Volume Traded (M) 2.77 2.86 -0.09 EXPECTED GSE PRICE MOVEMENT TickerEXPECTATIONS OUTLOOK REASON EQUITY MARKET FLASH: GSE CI tumbles SOGEGH Speculation SIC Improving bids The Accra Bourse failed to maintain momentum during the week under review as the index dropped 26.74 points on the back of the declines in the prices of Enterprise Group, Ecobank Ghana, GCB Bank and Ecobank Transnational to close the week at 3,309.93, this represents a Year-To-Date CURRENCY MARKET Change of 28.70%. Interbank Average Rates Starwin Products was the most traded stock, boosted by improving bids; Currency Closing Previous Gain/Loss this ensured its price went up by 50% at the close of the week. Ten other Week Week equities registered gains, while seven others declined. GHS GHS 1- Mth Y-T-D Dollar 4.418 4.418 0.12 -4.94% A total volume of 2.77 million shares valued at GHS 3.96 million exchanged Euro 5.447 5.467 0.92 -18.55% hands in twenty four (24) equities. Pound 6.089 6.140 2.69 -14.65% MONEY MARKET HIGHLIGHTS GOG 5th -9th 26th -2nd Change 6th-10th Treasuries Mar 18 Feb 18 (%) Mar 17 91-Day T-Bill 13.37% 13.34% 0.02% 22.79% 182-Day T-Bill 13.89% 13.89% -0.01% 17.09% 1-Year Note 15.00% 15.00% 0.00% 19.00% 3-Year Bond 18.25% 18.25% 0.00% 24.50% 5-Year Bond 17.60% 17.60% 0.00% 18.75% Amount Raised 841.00 819.00 1,560.00 (GHS MN) Source: Bank of Ghana COMMODITIES MARKET Commodity This Previous Change YTD (%) Week Week Brent Crude Oil (US$/bbl) 64.17 67.14 2.30 19.45% Gold (US$/oz) 1,322.23 1,329.26 -7.03 15.23% Source: Bloomberg, ICCO 3 OTHER ECONOMIC DATA NEWS FLASH Indicator IMF assesses Ghana ahead of $236m disbursement Inflation January 2018 10.30% The International Monetary Fund (IMF) is expected to disburse two hundred Policy Rate January 2018 20.0% Real GDP Growth June 2017 7.8% and thirty-six million dollars ($236 million) credit support to Ghana as part of it extended credit facility agreement with Ghana. This is expected to help restore economic stability in the medium to long PRICE INFORMATION term. OTHER AFRICAN STOCK MARKETS Country 2-03-18 Year Change Y-T-D Year Opening (GHS) Current Price (GHS) Change (GHS) Y-T-D (%) Open Botswana(BGSMDC) 8,689.44 8,862.22 -172.78 -1.95% 0.2062 0.2244 0.0182 9.02% Egypt (EGX 30) 15,443.2 15,023.76 419.42 2.79% Kenya (NSE ASI) 181.26 171.16 10.10 5..90% Nigeria (NGSE ASI) 42,876.2 38,264.79 4,611.4 12.05% South Africa (JSE ASI) 57,583.6 59,731.16 -2,147 -3.60% Source: Bloomberg Disclaimer: This document is not intended to be an offer, or a solicitation of an offer for the sale or purchase of any security.