GTI Top-5 Weekly Stock Picks- Monday, July 18, 2016

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Skye BankMatters Arising
 
On the 4th of July 2016, the Central Bank of Nigeria (CBN) announced the removal of the chairman of the board of Skye Bank Plc, Mr. Tunde Ayeni; other non-executive directors of the board; its managing director, Mr. Timothy Oguntayo; deputy managing director, Mrs. Amaka Onwughalu; and two other executive directors of the bank. Confirming the removal of most members of the board of Skye Bank, the Central Bank said the chairman, all non-executive directors, as well as the managing director, deputy managing director, and the two longest-serving executive directors on the executive management team had been sacked.
Emefiele said despite the expectation of the relevant regulators, market watchers, financial analysts and interested stakeholders, Skye Bank should have been doing much better, but what was evident was the opposite. The CBN selected industry experts and people of high integrity whom it believes can turn the bank around. They are: Alhaji M.K. Ahmad to be the new chairman while Mr. Adetokunbo Abiru would be the new managing director. The more recent executive directors will be allowed to remain to ensure continuity and a smooth transition.
The Issues:
  • Rising non-performing loans
  • Capital Adequacy concerns
  • Liquidity ratio concerns
  • High exposure to inter party related loans
Our Q3-2014 Review click link for full report
In our report on the third quarter result of Skye Bank which we captioned: the calm before the tide, published on the 6th of January 2015, we placed our fair value of the Bank at N3.12.  Our assumptions were premised on the facts that;
  • The Bank had successfully acquired Mainstreet Bank from AMCON at N126 billion. This acquisition was expected to open Skye Bank to new markets where it previously had no presence. The acquisition was positive in our view and based on our review of the Bank’s challenges at the time, the acquisition would help boost its deposit base and enhance risk asset creation capacity which ultimately strengthens net income, retention capacity and boosts net asset position.
  • Appointment of a new Managing Director which in our opinion was supposed to breathe fresh ideas and implement the growth strategies of the bank.
Based on the Buy recommendation, we placed the stock of Skye on our weekly top 5 stock picks for a period of time. We however removed it from our picks because of the delay in the release of its FY 2014 report which was published on the exchange site on the 14th of May 2015.
Despite our buy recommendation, our report noted with worry, the progressive decline in the net asset of the bank in the first three quarters of 2014 which we adduced to the rising Non Performing loans profile of the bank as well as its low retention capacity. We also noted the very lukewarm balance-sheet movement which showed slow responses in balance sheet deployment to policy changes by the CBN as well as the poor loan book growth.
Our Recommendation based on current realities
A bank is only as good as its capacity to remain a functional bank.  If there is a threat to the capital base so much so that it threatens the existence of the bank, we recommend that our investors sell down their positions. However, as soon as the audited report for FY 2015 is released, we will re-examine the threat to the banks net asset position and review our position.
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If you would require any help to ensure that your portfolio is positively aligned, or any inquiry on your portfolio, please send an email to research@gti.com.ng or to c.anyanwu@gti.com.ng.

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Have a fantastic trading week.
 
Chuks Anyanwu
Head, Research and Strategy
 
Top-5 Commentary 
Champion Breweries: Going by the recent antecedence of Heineken and how it merged the operations of Consolidated Breweries and Sona Breweries with its flagship brand Nigeria Breweries, the smart money is on the possibility that at some time soon, Champion Breweries may be merged fully with the operations of Nigeria Breweries.
International Breweries: Following the acquisition of SABMiller by AB-inBev in the twilight of 2015 in a deal worth about $106 billion, AB-inBev now controls 25% of the Global beer market.  As a result of this acquisition International Breweries automatically becomes a subsidiary of the largest brewing company in the world.
Julius Berger: The company has a huge public sector portfolio which includes: Permanent Site of the National Institute for Legislative Studies, Abuja, New Residences for Presiding Officers of the National Assembly, Abuja, Rehabilitation & Extension of Airport Expressway, Abuja, Rehabilitation of Badia Roads,Lagos, Lagos-Badagry Expressway,Lagos, Lagos-Ibadan Dual Carriageway, Section 1, Lagos-Shagamu, and many more (these are all on-going).

Click ‘here‘ to view the full GTI 5 Weekly Stock Picks.

GTI

GTI is a leading Nigerian Investment Banking group with proven expertise in Financial advisory, Securities Dealing (Fixed Income and Equities), Asset management and Deal Origination. We have strong capacity in financial service delivery.

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