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Equity Bank - BUY - Good value, strong fundamentals
Rank: Chief Joined: 5/31/2011 Posts: 5,121
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We issue a BUY recommendation on Equity Bank Limited (Equity Bank) with a 1 year fair value price of KES 41.29, 21.4% upside from the current price. With GDP growth expected to rise over the next coming years (Kenya government forecast of 5.6%, World Bank forecast of 5.8% in FY13E), we believe that the banking sector will be a major beneficiary. Equity Bank, with 7.8m customers and the 2nd largest loan book in East Africa, is well positioned to take advantage of the expected growth. We forecast that faster loan book growth (3 year CAGR of 27.5%) will drive growth in net interest income, while increased transactional income from the 7.8m customers will drive non-interest income. Agency banking should reduce the cost to income ratio (to 48.0% in FY13E) and help keep cost of funds low by attracting low cost deposits. For FY13E, we estimate an EPS of KES 3.80 (+16.4% y/y) with lending in the next 3 quarters expected to make up for the slow growth in 1Q13.
Positives
• Improving macroeconomic conditions across the region will drive loan book growth over the next 3 years (3 year CAGR of 27.5%) compensating for Net Interest Margin (NIM) compression
• Cost of funds is expected to decline from 3.9% in FY12A to 2.4% in FY13E, 2.6% in FY14F and 2.2% in FY15F
• Increased long-term borrowed funds from DFIs (from 6.1% of average assets in FY10A to 12.1% in FY12A) will lead to less volatile cost of funds
• Increased SME lending will lead to an improvement of Net Interest Income and asset quality
• Growth in non-interest income will be driven by increased customer numbers, transactions per customer, remittances and additional fees from loan book growth
• The regional subsidiaries will continue to be significant sources of non-interest income while increasingly contributing to net interest income as they grow their loan books
• Agency banking in Kenya, Tanzania and Rwanda will bring down cost-to-income ratio, reduce operational leverage and grow low cost deposits (at a 3 year CAGR of 24.7%)
• Branch expansion will be focused on SMEs and supporting agency banking
• The bank’s continuous focus on innovation is key in maintaining and extending its competitive advantages
Negatives
• The yield on interest earning assets is expected to decline from 16.9% in FY12A to 14.3% in FY13E, 14.1% in FY14F and 11.6% in FY15F which will consequently lead to a decline in Net interest margins (NIMs) from 13.0% in FY12A to 11.8% in FY13E, 11.5% in FY14F and 9.4% in FY15F)
• Potential 10% excise duty on financial transactions may lead to compression in non-interest income margins
• Additional provisioning is required (+95.2% y/y) to keep up with the rise in non-performing loans
• With strong loan book growth expected (3 year CAGR of 27.5%) and more stringent prudential guidelines, Equity Bank may need to raise capital in 2014
• High turnover of senior management is a concern
Source: Kestrel Capital, 12th June, 2013
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Rank: Elder Joined: 9/23/2010 Posts: 2,221 Location: Sundowner,Amboseli
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And Kestrel have the clients(read financial muscle) to market make  What becomes of simba,their baby?  @SufficientlyP
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Rank: Veteran Joined: 6/23/2011 Posts: 1,740 Location: Nairobi
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Is the case that if one has 1 shilling to invest he has the best bet investing in Equity Bank (assuming he/her want to invest in stocks).
What informs such a decision in simple terms, is it dividends capital gain etc.
Why do I say so, I did not see a strong recommendation for NIC at 30.00 yet it has moved since then to even 58.00, wacha 57.00. This is about 90% gain.
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Rank: Elder Joined: 7/11/2012 Posts: 5,222
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NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals.
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Rank: Elder Joined: 2/26/2012 Posts: 15,980
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Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
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Rank: Elder Joined: 1/21/2010 Posts: 6,675 Location: Nairobi
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There was someone who had some "insider information" that equity would be at 40bob today! Bullcrap if I've ever seen some... Mark 12:29
Deuteronomy 4:16
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Rank: Elder Joined: 9/25/2009 Posts: 4,534 Location: Windhoek/Nairobbery
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Kestrel is projecting a 16.4% y/y increase in EPS in FY13..I think that will dissapoint the market
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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the deal wrote:Kestrel is projecting a 16.4% y/y increase in EPS in FY13..I think that will dissapoint the market That is very conservative projection and valuation. You know that, right?
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Equity Bank remains on our BUY recommendation
• Declining interest rates are supportive of strong retail loan book which accounts for about 45.0% of the bank’s loan book. The risk of default will be minimized by the relatively lower lending rates
• Increased agency banking roll out should see cost/income ratio improve further. Slightly over 20% of the banks transactions are currently being conducted by agents
• Strategic focus on SME lending to drive earnings growth
• Cheaper retail deposits to support low interest expense thus relatively better interest margins
• Consolidation of gains from regional subsidiaries in Uganda, Rwanda and Southern Sudan to support future growth. The bank will halt its regional expansion this year to consolidate gains from earlier expansion efforts
• Trading at relatively high multiples; P/E, P/BV of 10.7x, 2.2x respectively. However, we expect the stock to fetch higher premiums on the back of stronger future earnings expectations.
• Equity Bank Has attracted increased foreign interest since Helios Investment partners which is associated with the likes of investment Guru George Soros opted to suspend their exit from the stock indefinitely. Equity is now 47% foreign owned.
Source: NIC securities - 13th June, 2013
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Rank: Elder Joined: 4/22/2010 Posts: 11,522 Location: Nairobi
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murchr wrote:Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- Everything else was at a discount then....rather a large no. of stocks... possunt quia posse videntur
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Rank: Elder Joined: 3/19/2013 Posts: 2,552
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Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I always work with a simple assumption,the market is rigged/manipulated.Grim but true to a certain extent.Beyond that,the only thing to worry about is your broker/bank going down with your money.It boils down to understanding the effects of pride,fear,greed and perception on the market and sociology,psychology and history have great insights on that.
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Rank: Elder Joined: 9/25/2009 Posts: 4,534 Location: Windhoek/Nairobbery
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maka wrote:murchr wrote:Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- Everything else was at a discount then....rather a large no. of stocks... @maka I dont get what you are trying to say...I had Member on a BUY rating then cut it to HOLD with TP of Sh34 in my latest rating. At Sh40 I'm most likely to cut it to SELL. You can read more here http://goo.gl/WXlPk
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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the deal wrote:maka wrote:murchr wrote:Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- Everything else was at a discount then....rather a large no. of stocks... @maka I dont get what you are trying to say...I had Member on a BUY rating then cut it to HOLD with TP of Sh34 in my latest rating. At Sh40 I'm most likely to cut it to SELL. You can read more here http://goo.gl/WXlPk @the deal, your valuation is based on FY12 results. You may need to update it now that we have received Q1_13 results
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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@hisah, @the deal, et al, what do you make of this chart. ... I notice RSI has droped to oversold level. Is a bounce at this level in order or watching activity down and @KES 30 should be the best way forward 
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Rank: Elder Joined: 9/25/2009 Posts: 4,534 Location: Windhoek/Nairobbery
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mwekez@ji wrote:the deal wrote:maka wrote:murchr wrote:Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- Everything else was at a discount then....rather a large no. of stocks... @maka I dont get what you are trying to say...I had Member on a BUY rating then cut it to HOLD with TP of Sh34 in my latest rating. At Sh40 I'm most likely to cut it to SELL. You can read more here http://goo.gl/WXlPk @the deal, your valuation is based on FY12 results. You may need to update it now that we have received Q1_13 results Not true at all...read the link first...my valuation is based on H1 2013 earnings projections...
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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the deal wrote:mwekez@ji wrote:the deal wrote:maka wrote:murchr wrote:Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- Everything else was at a discount then....rather a large no. of stocks... @maka I dont get what you are trying to say...I had Member on a BUY rating then cut it to HOLD with TP of Sh34 in my latest rating. At Sh40 I'm most likely to cut it to SELL. You can read more here http://goo.gl/WXlPk @the deal, your valuation is based on FY12 results. You may need to update it now that we have received Q1_13 results Not true at all...read the link first...my valuation is based on H1 2013 earnings projections... I noted the H1 (Q1+Q2) 2013 earnings projections. Now we have the Q1 2013 actual results. I was thinking it would be inorder for you to review the valuation based on the new info. It however seems you are comfortable with the valuation made them. So, what is your take on the trading perspective, the chart in post 15 above
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Rank: Elder Joined: 9/25/2009 Posts: 4,534 Location: Windhoek/Nairobbery
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mwekez@ji wrote:the deal wrote:mwekez@ji wrote:the deal wrote:maka wrote:murchr wrote:Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- Everything else was at a discount then....rather a large no. of stocks... @maka I dont get what you are trying to say...I had Member on a BUY rating then cut it to HOLD with TP of Sh34 in my latest rating. At Sh40 I'm most likely to cut it to SELL. You can read more here http://goo.gl/WXlPk @the deal, your valuation is based on FY12 results. You may need to update it now that we have received Q1_13 results Not true at all...read the link first...my valuation is based on H1 2013 earnings projections... I noted the H1 (Q1+Q2) 2013 earnings projections. Now we have the Q1 2013 actual results. I was thinking it would be inorder for you to review the valuation based on the new info. It however seems you are comfortable with the valuation made them. So, what is your take on the trading perspective, the chart in post 15 above Q1 2013 earnings was exactly the same as Q1 2013 projections...why upgrade or downgrade? On the charts the stock is oversold...it can easily bounce to Sh34.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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the deal wrote:mwekez@ji wrote:the deal wrote:mwekez@ji wrote:the deal wrote:maka wrote:murchr wrote:Mukiri wrote:NSE ina wenyewe Buy-Pump-Sell. I think in this market, we should not observe market trends per se but those of certain individuals. You still havent learnt the ropes ha! just take note of brokers recommendations but buy a company you believe in. @deal started beating the Equity drums when it was trading at less than 20/- If u listened you've made money. I wait to see how long member will take to get to 40/- Everything else was at a discount then....rather a large no. of stocks... @maka I dont get what you are trying to say...I had Member on a BUY rating then cut it to HOLD with TP of Sh34 in my latest rating. At Sh40 I'm most likely to cut it to SELL. You can read more here http://goo.gl/WXlPk @the deal, your valuation is based on FY12 results. You may need to update it now that we have received Q1_13 results Not true at all...read the link first...my valuation is based on H1 2013 earnings projections... I noted the H1 (Q1+Q2) 2013 earnings projections. Now we have the Q1 2013 actual results. I was thinking it would be inorder for you to review the valuation based on the new info. It however seems you are comfortable with the valuation made them. So, what is your take on the trading perspective, the chart in post 15 above Q1 2013 earnings was exactly the same as Q1 2013 projections...why upgrade or downgrade? On the charts the stock is oversold...it can easily bounce to Sh34. Noted ;-)
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Equity Bank - BUY - Good value, strong fundamentals
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