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NMB trades below fair value despite stellar performance

NMB Bank is one of the leading lenders in Tanzania. In last year’s quarter four posted an impressive performance.

During the quarter that ended in December 2019, NMB Bank Plc recorded a 6 per cent increase in net interest income to 130.65bn/- from 123.29 bn/- in the previous comparative quarter that ended in December 2018.

This increase was in line with the 7.4 per cent increase in interest income to 163.26bn/- while interest expenses increased by 13.3 per cent to 32.60bn/-.

On the other hand, noninterest income grew by 154.52 per cent to 64.5bn/- from 25.3bn/-mainly due to increase in fees and commission by 215 per cent to 55.45bn/- from 17.55bn/- in the similar quarter of 2018 (year-on-year 14 per cent up).

Non-interest expenses grew by 24.30 per cent to 102bn/- (from 82.7bn/- in the last quarter of 2018). In terms of impairment losses on loans and advances, NMB recorded a drastic improvement from a loss of 54bn/- in Q4 of 2018 to a gain of 3.0bn/- in Q4 of 2019.

The bottom line year-on-year increased significantly by 52 per cent while quarter-wise there was a massive positive change of 818 per cent (59.67bn/-) to 66.96bn/- from 7.29bn/- which affected improved returns for the shareholders’ funds.

The bank’s earnings per share (EPS) rose to 134/- which is 2.3 folds from 58/- in the previous comparative quarter that ended in December 2018. The bank’s total assets increased by 6.86 per cent to 6.54tri/- from 6.12tri/- in the previous quarter ending on 30th September 2019.

Shareholder’s funds increased by 70bn/-mainly from Profit/ Loss account to 978.92bn/- from 908.84bn/-. The bank’s balances with Central Bank increased by 21.4 per cent to 842.90bn/- while, investment in government securities dropped by 12.3 per cent to 761.55bn/-. Loans and advances (net of allowances for probable losses) increased by 6.6 per cent to 3.61tri/- from 3.39tri/-.

Commentary on the results

NMB enjoyed a tremendously improved performance, registering cumulative profit after tax amounting to 148.63bn/- from 97.66 bn/- recorded in the year ended 2018. As for the other large banks, NMB’s performance improved significantly despite decline or insignificant growth in lending to the private sector.

The chief drivers of the NMB performance were the decrease in impairment losses on loans and advances (contributing 57bn/- in the quarterly comparison) and increase in the fees and commissions (making 38bn/-).

The efforts to clean up the loan book also led to a decline in the ratio of non-performing loans to total gross loans from 8.3 per cent to 6.9 per cent, gradually edging towards the regulatory maximum of 5 per cent.

The bank’s operational efficiency as reflected in the ratio of non-interest expenses to gross income also improved from 55.7 per cent to 52.7 per cent (y-o-y from 59.4 per cent to 56.6 per cent).

Return on Assets (ROA) increased to 4.2 per cent from 0.5 per cent (y-o-y from 1.8 per cent to 2.4 per cent) while Return on shareholders’ funds increased to 28.4 per cent from 3.4 per cent (y-o-y from 11.4 per cent to 16.5 per cent).

The cumulative basic earnings per share (EPS) increased to 297/- from 195/- recorded in the year ended 2018. Gross and net profit margin increased to 58 per cent and 41 per cent from single digits of 7 per cent and 5 per cent respectively.

However, quarter-onquarter the bank improved the margins from 23 per cent and 16 per cent in Q3 2019 to 58 per cent and 41 per cent in Q4 2019 respectively. However, despite these performance improvements for the bank, its stock at the Bourse remains illiquid with many more outstanding offers than bids.

The Dividend of 66/- per share paid in 2019 did not seem to persuade investors to invest in the bank. Currently the stock trades only occasionally at 2,240/- while the closing price has been stagnant at 2,340/- from November 2018. Our view remains that the stock is trading below its fair value, and thus we maintain our BUY recommendation.

● Tanzania Securities Limited is a stock brokerage firm based in Dar es Salaam, info@ tanzaniasecurities.co.tz. The firm prepared the NMB Bank Quarter Four 2019 Financial Results

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Author: Tanzania Securities Limited

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