Apart from its impressive overall performance, the share price of the bank offers a strong chance for investment. With a lower price-to-earnings ratio than the sector, it is reasonably priced.
Even with these encouraging signs, the performance of its Nigerian business is still lagging behind other regions, however the 9M 2023 results suggest it will probably surpass the 2022 results.
According to the audited financial statements that Nairametrics was able to view, Ecobank Transnational Incorporated (ETI) has revealed a noteworthy 55% year-over-year increase in profit before tax, amounting to N262.171 billion. This figure is of particular note because it is 14% higher than the full-year figure of N230.55 billion recorded in 2022, which itself represented a 5-year high.
The banking group ascribed this growth to a combination of increased revenue and enhanced cost efficiency. CEO Jeremy Awori provided insights into the results, stating,
“Ecobank generated profit before tax of $450m for the nine months to September, an increase of 55% in constant currency from the prior year. Moreover, we delivered profits attributable to ETI shareholders of $224m, which translated to a return on tangible shareholders’ equity of 25.6% on the back of a strong revenue growth of 34% in constant currency and an improved cost-to-income ratio of 53.7%.”
Based on a preliminary examination of the financial accounts, operational income increased by 12%, or 55% in constant currency, to $1.518 billion, or N884.618 billion, in the first nine months of 2023.
This amount not only represents a notable year-over-year increase, but it also exceeded the N794.860 billion five-year record for the entire year that was achieved in 2022.
However, a comparison with other banks like UBA, FBNH, Stanbic IBTC, Zenith, etc. shows that it is rather high, even though the improved cost-to-income ratio of 53.7% is believed to have played a substantial role in supporting the outstanding bottom.
The bank's comparatively high cost-to-income ratio may have resulted from the noticeable increase in operational expenses, even as revenue expanded more quickly.
The bank's operational expenses increased by 48% year over year to N475.353 billion, mostly due to the rise in staff expenses and other operating costs. This amount even surpassed the N448.441 billion for the entire year 2022.
In order to further lower its cost-to-income ratio, we anticipate the bank to keep improving its cost-containment measures.
Apart from the noteworthy increase in net revenue and improved cost effectiveness that have contributed to the excellent profitability, the group's broad regional diversification has been identified as a crucial success element in mitigating region-specific issues.
This advantage has proven instrumental in mitigating challenges unique to specific regions, as highlighted in the banking group’s 9-month result statement:
“Group profit before tax increased by 12% or 55% at constant currency to $450 million, driven by positive operating leverage (revenue growth higher than expense growth) and despite the exposure to Government of Ghana (GoG) Eurobonds substantially increasing impairment charges on other financial assets and continued hyperinflation in Zimbabwe and South Sudan creating net monetary losses.
Nigeria offers a clear example of the benefits of geographical diversification, as the country's commercial performance falls short of the other global locations where the banking company operates.
The Nigerian business generated only 12.85% ($239 million) of the group's net sales in the 2022 fiscal year. During the 9-month period of 2023, this pattern persisted, with the Nigerian company accounting for 12.52% ($190 million) of the group's net revenue.
Additionally, a breakdown of the PBT reveals that, compared to Francophone West Africa (UEMOA), Anglophone West Africa (AWA), and Central Eastern and Southern Africa (CESA), which contributed 52%, 36%, and 49% respectively, Nigeria's business contributed only 5.56% ($25 million), or 80.18% of its 2022 full-year contribution.
Total assets and stock performance
With total assets up $26.644 billion, or N20.697 trillion, as of September 30, 2023, and subsidiaries spanning 33 Sub-Saharan Africa (SSA), the Pan African lender remains a formidable presence despite the fluctuating performance in certain regions. The bank paid a final dividend of $0.11 cents per share, representing a 5.6% payout, following its impressive performance in 2022. Over the last five years, the bank has distributed dividends in two of those years. Given the bank's potential to exceed its 2022 profit after tax, it is anticipated that the banking group should increase its dividend per share in contrast to 2022.
The present dividend yield, which is 3.29%, is improved by this prospective dividend rise, which also serves to bolster investor confidence.
Last year, the stock outperformed both the NGXASI and the NG Banks industry, rising to a YtD gain of 21.84%. As of Monday, December 4, 2023, the Year-to-Date gain for this year has risen to a remarkable 61.32%. This significant gain demonstrates the optimistic attitude of investors and the market toward Ecobank's continued financial performance and future expansion opportunities.
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