Africa: Ecobank’s comeback on course
Strong first quarter results; share price still subdued.
Ecobank Transnational (ETI) had a strong first quarter, despite last year’s corporate governance issues that gained much media attention and culminated in the dismissal of key board members.
To solely focus on growth markets such as Ghana and Nigeria is not a sensible strategy in our opinion
Laurence do Rego,
The financial results for this year’s first quarter, published on May 1, show net revenue was up 2% year on year to $534 million, and profit before tax was up $155 million, 33% compared with the previous year. For the full financial year of 2014, revenue for ETI was up 14% to $2.3 billion, and profit before tax was up 134% to $519.5 million.
“We are very proud of ETI’s results so far this year, which follow on from a very successful 2014,” says Laurence do Rego, group executive director, finance and risk at Ecobank.
“Our key areas of focus for the last 12 months or so have been on efficiency and risk mitigation in our key markets, which has been reflected in our strong financial results. We have been very cautious in terms of credit underwriting. Our diversified, pan-African model means that we are able to leverage off our presence in other markets when things begin to weaken elsewhere,” she says.
“The success of our bank is due to our strict risk mitigation process, and our building efficiency. This is what we have dwelt on, over and above the corporate governance issues that we have faced and dealt with satisfactorily,” says do Rego.
Cracks began to emerge in ETI’s leadership in 2012, when boardroom battles concerning book fixing culminated in the dismissal of two of the group’s key members, CEO Thierry Tanoh and chairman Kolapo Lawson. Following the turmoil, Albert Essien, who has been with Ecobank for 25 years, took over as CEO with the aim to restore investor confidence in the bank.
Meanwhile, some analysts and bankers have criticised Ecobank for its expansion drive beyond growth markets of Ghana and Nigeria into east Africa. However, do Rego maintains that this strategy has supported the group’s financial results across the board. Ghana and Nigeria, two of Ecobank’s main markets, have both suffered from falls in commodity prices and currency devaluations, which have in turn affected the banking sector.
“To solely focus on growth markets such as Ghana and Nigeria is not a sensible strategy in our opinion, but the diversification of risk across Africa is something that we believe is important,” says do Rego. “Now that we are present in key economies across the continent, we shall focus on driving efficiency everywhere.”
It may take some more time for the share price to fully recover
Fidelis Madavo, Private Investment Corp
Adesoji Solanke, lead analyst for sub-Saharan Africa banks at Renaissance Capital, says ETI’s performance has been good. “More importantly, the [bank’s] Nigeria business continues to trudge along nicely, with return on equity in the first quarter of this year at 22%,” he says. “They have done the best job among the recently merged Nigerian banks in executing a turnaround.”
Fidelis Madavo, head of resources at South Africa’s Private Investment Corp (PIC), one of ETI’s largest shareholders, with an 18.2% stake in the pan-African lender, says he has been pleased with Ecobank’s performance this year. “I do believe that the group is still ironing some issues out in terms of corporate governance, for instance, Essien plans to step down this summer and there are still some legal issues surrounding Tanoh’s departure,” he says. “But these are big changes that are being dealt with in the correct way. We hope that following these other changes, as well as the recent capital injection by Qatar National Bank, there will be some consolidation and the bank will move from strength to strength.”
QNB became one of ETI’s largest shareholders with an approximate 19% stake when it bought Asset Management Co of Nigeria’s (Amcon) stake last September.
Nedbank became another of ETI’s main shareholders in October 2014, when the South Africa lender exercised the right to convert $285 million of existing debt into equity.
Despite the strong performance, some analysts suggest that ETI’s share price has remained subdued because of the corporate governance issues that have troubled the group.
Derrick Mensah, senior analyst at African Alliance says: “Share prices for Nigerian banks tend to be lower than share prices for banks in places such as Ghana and Kenya, for example. As well as macroeconomic reasons, another factor behind this is that following the banking crisis in 2009, investor sentiment towards the sector has remained subdued. Moreover, regulatory controls that have been put in place since the crisis has actually meant that building up investor confidence around the banking sector has been a slow process. Investors are waiting for even more certainty.
“But ETI’s share price may have been affected further because of the additional effect of corporate governance issues on the stock,” says Mensah. “Investors are spoiled for choice in Nigeria because of the low bank share prices. I would suggest that they would be much more likely to buy Zenith or an Access Bank, for example, over ETI because these banks haven’t suffered from governance issues at the same level of ETI.”
The price to book ratio for ETI is 1.05. For Guaranty Trust Bank and Zenith Bank – both top-tier banks in Nigeria – the price to book is 2.43 and 1.34 respectively. Share prices in Naira for ETI reached N21.8 ($0.11) on May 21, compared to N15.5 a year earlier. During the same period, share prices for Guaranty Trust Bank, and Zenith Bank changed from N27.5 to N29 and N22.9 to N22.50 respectively.
As do Rego points out: “I would say that our share price has done a lot better than our peers in Nigeria. While share prices throughout the market have been subdued as a result of macroeconomic headwinds, in this environment, ETI’s share price has been relatively robust.”
Madavo says: “Any issues with the share price have been a result of internal corporate governance issues as well as external macroeconomic issued in Nigeria. It may take some more time for the share price to fully recover.”