Investment advisory firms recommend FDH Bank shares

Four leading Investment Advisers have recommended to members of the public to purchase FDH Bank shares currently on offer saying they offer a great opportunity for a great return on investment in future.

NICO Assets Managers, Continental Assets Managers, Cedar Capital and Alliance Stockbrokers Limited share similar sentiments that the FDH Bank shares being offered are a great opportunity for investors looking to buy stocks that should earn them great return in future.

In their expert analysis, the four advisers highlighted the strong performance of the bank evidenced by the high Return on Equity, which in simple terms depicts how much profit is being generated for its shareholders.

“FDH Bank has grown to surpass other entities established much earlier and has achieved this whilst generating strong returns for shareholders as evidenced by the strong Return on equity of over 40% in 2019,” Cedar Capital said in its analysis.

NICO Asset Managers, notes that for the past two consecutive years (2018 and 2019), FDH’s return on equity has been significantly higher than the entire banking industry.

An industry analysis by NICO Assets on Profit after Tax, Total Revenue, and Customer Deposits shows that FDH Bank is number three to National Bank of Malawi and Standard Bank.

“FDH Bank is a relatively strong, competitive, and well performing investment grade institutions and the long term investment potential is positive,” notes a report by NICO Asset Managers.

“The Bank is showing encouraging signs of earnings growth with return on equity and return on assets significantly higher than the local averages of the banking industry as whole and other listed banks in the last two years,” adds the report by NICO Asset Managers.

It also notes that FDH Bank registered a 7% increase in net interest income and a 32% increase in profit after tax for the year ended 2019.

“Looking forward the bank is likely to see an increase in interest income due to increase in deposits and recent increase in loans to deposit ratio,” reads the reporting while recommending FDH Bank’s exceptional credit process where the bank has underwritten quality loans which has enabled it to achieve low credit impairments and achieve a Non-performing loans ratio of only 0.8% as at 31 December against an industry average of 6.3%.

Continental Asset Managers said among other things said FDH Bank has been in solid financial shape over the past two years and highlights the increased profitability, the growth in assets and growth in deposits as positive strides.

“Our view is that the bank is well positioned to mitigate the risks identified and that the Bank’s success can largely be attributed to the company’s strategic investment in digital banking and both growth in interest and non-interest income lines,” said Continental Asset Managers in its analysis.

Alliance Stockbrokers said that FDH Bank has sound key performance indicators and a solid forecast with much leveraged on digital banking.

“Profit history shows commitment to growth as evidenced by the sound balance sheet. FDH Bank is a growth company with so much potential of growth especially due to the extension of service to the unbanked through financial inclusion program,” reads an analysis from Alliance Stockbrokers.

 

“FDH is prominent in the market with a leading position in terms of number of service centres and is the 3rd largest bank in terms of customer deposits as at December 2019. The bank is also leading in terms of digital banking in Malawi and has heavily invested in its servers to increase banking efficiencies,”  added the Alliance Stockbrokers report.

Cedar Capital in its analysis report hailed FDH Bank’s digital platform channels noting that in February 2020, the Bank introduced Mastercard Debit Card, becoming the first Bank in Malawi to issue Mastercard Platinum debit cards to customers.

“The Bank continues to consolidate and improve on the convenient delivery channels through its digital products and providing innovative first-class financial solutions. The Bank also continues to upgrade its existing network infrastructure to bring it up to international benchmarks for an improved customer experience,” reads the report in part.

CEDAR Capital also states that FDH Bank has a strong entrepreneurial culture, stringent credit control and strong earnings and strong non interest earnings.

“FDH Bank, tracing its roots to just before the global financial crisis of 2008 has since grown strongly, anchored mainly on its entrepreneurial culture. Unlike most domestic and founder led banks in Africa which were/are known for bad lending practices, FDH Bank has proved itself on this front, with the lowest NPL ratio of 0.80% compared with 6.3% for the rest of the banking sector. This is really impressive especially when compared with the other two listed peers, which have double digit NPL ratios,” reads the report by Cedar Capital.

Commenting on the overall attractiveness of the banking sector, NICO Asset Managers said the industry looks promising and is set to continue growing despite the COVID-19 pandemic.

It notes that total industry assets grew by 13% in 2019 to K1.89 trillion (2018: K1.67 trillion) and that growth in industry deposits and loans and leases for 2019 were up by 8.0% and 21.3%, respectively, in 2019 from the prior corresponding year. National Bank and Standard Bank lost market share in 2019, accounting for 43.7% of assets (2018: 46.0%) and 46.1% of deposits (2018: 54.0%). This, NICO Asset Managers notes, indicates higher distribution of market share available for other banks, such as FDH Bank.

Continental Asset Managers also indicates that the banking industry is very attractive saying private sector credit continues to grow year on year, with an annual growth rate of 21.3% recorded in 2019,

up from 11.5% in 2018.

“The stronger growth in private sector credit in 2019 is a reflection of reduced interest rates over the years, following deceleration of inflation rates that began in 2015, getting to single digit in 2017. In the long term, we anticipate a low interest rates environment which may continue to spur private sector credit growth, leading to growth in interest income for the Bank.  In the short term, however, the COVID-19 pandemic and likely changes in monetary policy following change of government might have an upward pressure on interest rates,” noted Continental Asset Managers in its report.

Cedar  Capital values FDH Bank shares at MWK12.98 per share, which gives a potential upside of 30% on the IPO price of MK10. The company recommends that investors participate.

Continental Assets Managers concludes that based on their analysis, FDH Bank IPO presents a good opportunity for the long term investor to diversify their portfolio and encourages their clients to consider the opportunity.

NICO analysis concludes that FDH Bank is a good business case for medium to long term investing.

Alliance Stockbrokers concludes that considering the growth prospects and current strength of its balance sheet and the current economic, health and political situation, a long term buy for FDH Bank shares at MK10/share are strongly recommended.

The Malawi banking sector currently consists of 9 licensed commercial banks out of which 3 are listed on the Malawi Stock Exchange (MSE). Furthermore, 5 banks are domestically owned and 4 banks are foreign owned.

FDH Bank Plc has announced plans to list on the MSE on 3rd August 2020 and is offering up 20% of its shares to the public. The offer commenced on 29th June 2020 and will close at 17:00 on 17th July 2020.  FDH is offering 1,380,206,250 shares at K10 per share to raise K13,802,062,500.

Part of the IPO is for a subscription of new shares (401,031,250) and the other part is for sell of exiting shares (979,175,000).

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