WEMA BANK RETURNS TO PROFITABILITY WITH IMPROVED CAPITAL ADEQUACY AND LOW NPL

Wema Bank PLC

History of bank

This bank was established in 1945 as a Private Limited Liability Company (under the old name of Agbomagbe Bank Limited) and commenced banking operations in Nigeria the same year, Wema Bank later transformed into a Public Limited Company (PLC) in April 1987 and was listed on the floor of the Nigerian Stock Exchange (NSE) in January 1990. On February 5, 2001, Wema Bank Plc was granted a universal banking licence by the Central Bank of Nigeria (CBN), thus allowing the Bank provide the Nigerian public with diverse financial and business advisory services.

However, in 2009, the bank’s new majority shareholders undertook a strategic repositioning exercise which finally culminated in its taking a sound strategic decision to operate as a commercial bank with regional scope in South-South Nigeria, South-West Nigeria, Lagos and Abuja in 2011. Its focus was on delivery through its robust ICT platform across Nigeria, and branch network development with state of the art technology to drive long-term sustainability in their business operation as it expects a new status of national bank.

WEMA BANK
Share Holding Structure
SW8 Investment Co Ltd	31.4%
Neemtree Limited	17.38%
Odu’a Investment Company Ltd	9.5%
Nigerians and Associates	41.72%
Other Statistics
Shares Outstanding (MN)	39,488,373,213
Opening Price (2015)	0.96
Closing Price (As at 26/3/2015)	0.96
Date Listed	February 13,1990
Year End	31st Dec.

Management

The bank posted an impressive consolidated result for 2014 attributed to its strong transforming growth that brought it to a stable profitable position from a loss in 2012. This is a reflection of the management’s commitment, competent and ability to strategically reposition Wema Bank in positive direction to drive profitability. This is a bank that recently reshuffled its board, admitting new directors to foster its commitment to growth as shown on the numbers posted, its enhanced infrastructure and state-of-the-art technology to drive operations. Its performance in 2014 is a pointer to where the bank is heading, if in a year of harsh business environment with over regulation and unstable policy in its industry of operation with adjustment in Cash Reserves Ratio (CRR) in public and private sector, increase in Monetary Policy Rate (MPR) and devaluation of the Naira. 

 Performance Analysis

The bank’s interest income posted over the past five year have grown consistently with slight drop between 2013 and 2014 to over 62.65 per cent from N21.80 billion in 2010 to N35.45 billion in 2014. Aside 2010 and 2011 when the figures increased marginally, this was the period the bank readjusted to its regional banking operations. Nevertheless, the noticeable improvement in their operations between 2012 and 2014 financial year was attributed to internal restructuring to drive deposit and provide satisfactory service to its customers. The bank recently concluded its recapitalization through private placement has strategically boosted its performance and stake in the sector.

Its profitability level has returned to green from a loss position in 2011 and 2012. Although, there have been few fluctuations in its share price due to the earnings power that were seemingly weak but gradually bouncing back through 2013 to end the financial of 2014. The numbers were positive and impressive if only they will be sustained in subsequent years to wipe away the negative retained earnings and start paying dividend to investors that had fate in the bank. It reported a loss of N5.04 billion in 2012 but reported to profit of N1.60 billion in 2013 signifying change in its operation, before rising to N2.37 billion in 2014. Its shareholders’ funds stands at an advantage point, it is about 15 per cent of the turnover, after it soared from N15.77 billion in 2010 to N43.77 billion in 2014, representing 177.56 percent growth.

WEMA BANK FIVE YEARS FINANCIAL PERFORMANCE
	2014	2013	2012	2011	2010
Date Released	Mon. March 23, 2015	Friday, April 4, 2014	Friday, July 26, 2013	2012	2011
Price @ Released Date	0.92	0.93	1.07	0.57	1.23
Gross Earnings	35,453,227,000	36,980,000,000	30,716,386,000	22,773,921,000	21,796,000,000
Profit After Tax	2,372,445,000	1,596,531,000	-5,040,629,000	-4,228,926,000	17,455,000,000
Shareholders' Fund	43,768,649,000	41,395,151,000	1,278,315,000	6,268,131,000	15,769,000,000
Dividend	nil	nil	nil	nil	nil

Estimated Performance Ratios

The bank’s earnings per share for the period is a reflection of its earnings power as it moved from 136 kobo in 2010 to 0.04 kobo in 2013 and 0.06 kobo estimated from 2014 released financials. The said EPS is same as 15.31x (times) of the market price at released and yielded 6.53 percent of market price from price to earnings ratio of 0.90x. The book value looks attractive at N1.11, the growth in the book value through the observed periods re-established confidence and assurance of further growth after it has collapse due to weak and negative financials in 2011 and 2012. The significant dropped in the bank’s EPS was attributed to book cleansing that forced the loss recorded in 2012. The new slate in 2013 that ushered in profit that were sustained to 2014 would drive profitability in the bank three years growth strategic plan till 2017 as it is expected to expand it operations scope if national banking license is given. 

WEMA BANK- ESTIMATED RATIOS
	2014	2013	2012	2011	2010
Earnings Per Share	0.06	0.04	-0.39	-0.33	1.36
PE Ratio	15.31	23.00	-2.72	-1.73	0.90
Earnings Yield	6.53	4.35	-36.74	-57.87	110.68
Book Value	1.11	1.05	0.10	0.49	1.23
ROE	0.05	0.04	-3.94	-0.67	1.11
Profit Margin	6.69	4.32	-16.41	-18.57	80.08
Year End	Dec	Dec	Dec	Dec	Dec

2015 full-year results

The current audited result available to investors on financial performance of Wema Bank was impressive, despite the fact that shareholders were not rewarded in any way. Comparing the 2014 figures of the said result to that of previous year shows that gross income stands high as against 2013 value; meanwhile Profit for the period is a clear growth of 48.60 percent from the N1.60 billion of 2013 to N2.37 billion. Shareholders’ funds have equally built up marginally by 5.73 percent to currently stand at N43.77 billion. The bank’s non-performing loan has drop from 3.87 percent in 2013 to 2.94 percent in 2014 due to robust risk management of the bank, notwithstanding its 51 per cent increase in loan and advances to its customers. The bank’s reinforcement of its retail banking services had pushed its deposits level high to support profitability.

 

EPS estimates from the said period resulted in N0.06 as against the comparable periods of 2013 that stands at N0.04, by this, investment period base significantly at 15.31x from 23x. The said Earnings yielded 6.35 percent of the current market price this is quite above the 4.35 percent yield estimated in 2013. Its return on equity improved from 4 percent in 2013 to 5 percent in 2014, with increased of 6.69 percent in profit margin. 

WEMA BANK
Audited  Result 2014
COY	2014	2013	% Chg
	(N)	(N)
Date Released	Monday, March  23, 2015	Friday, April 4, 2014
Gross Earnings	35,453,227,000	28,542,092,000	24.21
Profit After Tax	2,372,445,000	1,596,531,000	45.60
Shareholders' Fund	43,768,647,000	41,395,151,000	5.70
ESTIMATED RATIOS
Earnings Per Share	0.06	0.04	50
PE Ratio	15.31	23.00	-33.43
Earnings Yield	6.53	4.35	45.98
Book Value	1.11	1.05	5.71
ROE	0.05	0.04	25
Profit Margin	6.69	4.32	54.86
	Dec	Dec

Valuation/Recommendations

The full year Book value of Wema Bank stands at N1.11 while Price to book value (PBV) is N1.15. On the strength of its Price-Earnings-Ratio of 15.31, which is relatively high in its sector. The share price of Wema bank is fairly and technically placed at N1.60.  As future earnings of the bank is expected to improved. 

Price Action

In the last seven months, the share price of bank has been side trending in a channel trading between the high of N1.10 and low of N0.86. This is quite below the high of N1.40 and low of N0.82 traded in 2014. Traders are therefore adviced to play within the said trading range. In other words, entry can only be made at the appropriate price on a support level. 

Wema Bank is good for all investment goals, whether you are thinking short or long. This bank was able to survival the meltdown and has started posting   positive earnings expected to support price going forward.