Apex Africa Capital has recommended a BUY on Equity Group Holdings Plc driven by a projected upside potential of 14.1%, with expectations that current dividend of Ksh 2.00 will be maintained for the next year.
Growth drivers
According to Apex, Equity’s balance sheet agility of 59.4% liquidity ratio compared to the industry’s 48.0% allows for opportunistic growth and diversification strategies in case of change in the operating environment.
The other growth driver is the business diversity in innovation and digitization as well as double digit growth in profitability by non-Kenya subsidiaries.
Fintech innovations in diaspora remittances rising by 439% to Ksh 38.08 billion in the first half of 2018 from Ksh 7.06 billion in a similar period in 2017. The growth is driven by strategic partnerships with money transfer agents such as VISA with an exclusive deal with ‘American Express’.
The Group plans on having its subsidiaries contribute 40% to PBT having enjoyed a profound regional presence contributing a 18.0% to PBT in the first half year of 2018. The lender now eyes the Ethiopian market given the Prime Minister’s resolve to open up the country’s economy.
Risks
- Implementation of IFRS 9 increasing provisions which introduces a forward looking view of credit quality with banks expected to recognize credit impairment before loss event.
- Slow credit growth due to the impeding rate cap and tough macroeconomic conditions
- A changing macroeconomic and regulatory environment may cause unexpected pressures going forward.
- Falling yields on government bonds with interest rate on 10-year government bond in 2016 averaging 13.9% and declining to 12.9% in 2018 as demand continues to offset the government’s appetite signaling lower earnings for the banks. The bank is however set to enjoy good returns given its entry point.
“Looking ahead, prosperous times for the group await supported by calm political temperatures, subdued inflation rate coupled with a stable shilling that has caused resurgence in strong capital inflows and improved investor sentiments. The Group also aims to leverage on the Big 4 agenda given its market share (over 12M customers) and its strong brand.” says Linda Kiraithe Research Analyst Apex Africa Capital LTD
