OCEANIC BANK & FIRST BANK stock analysis post merger talk collapse

April 24 (Lagos) – Since we all heard the news of collapse of merger talks between First Bank of Nigeria Plc and Oceanic Bank Plc, the stock price of both banks has taken a beating. While one could attribute this to the overall price movement stagnation at the NSE over the past month, but these two stocks have fallen much more than the general market since the start of the year and much before from their pre merger talks. So we take a look at the stock performance of these two banks since January.

 

 

Background

Before we start analysing the stock performance of First Bank Plc and Oceanic Bank Plc, we must review the happenings in the period we are considering in the Nigerian banking sector. AMCON started soaking up the non performing loans from rescued banks in January. That led to NSE roaring ahead with most stocks rising sharply. Since then the mood has settled and stocks have retreated back to the same levels as in 2010. Interest rates have been increased, inflation is rising and oil prices are spiking up. Naira has been steadily falling since 2011 because of huge spending by the government on elections. Over the past week, post election riots destroyed any increase in NSE values caused by the election of Dr. Goodluck Johnathan. Now we take a look at stock performance of First Bank Plc and Oceanic Bank Plc in detail.

 

 

First Bank of Nigeria Plc

 

 

First Bank stock had been falling much before they decided against investing in Oceanic Bank. On January 20, First Bank stock spiked at N 16.12 led by unusually high trade volume of 176 million shares. The high trade volume continues for the next couple of days and from there onwards the decline began

 

Firstly the volume returned to normal levels and the stock price declined steadily. On April 21, the stock closed at N 13.16, thats a decline of 22% over a little more than 3 months. Over the past week when the merger news came out, the stock lost value along with rising volume. Between April 13-21, more than 268 million shares of first bank plc were traded and the stock retreated by 9%.

 

 

So what do we think?

First Bank is a top bank in Nigeria. Recently it reported a rise in earnings and profit for 2011 and proposed a dividend of 60 kobo per share. If the management of First Bank decided against investing in Oceanic Bank, they probably had very good reasons to do so. This Bank wants to concentrate on organic growth and it has immense capabilities in that regard.

 

 

Yes its stock is down 22% over past 3 months and the stock has been an under performer over the past year. The reason for this has less to do with collapse of talks with Oceanic Bank as the general banking environment is going through a tough phase.

 

 

With rising cost of borrowing and higher reserve ratio’s, Banks will find it harder to maintain their margins. However First Bank stock could recover from this position. Our target price for this stock is N 15.50.

 

Oceanic Bank Plc

 

 

Oceanic Bank is one of the banks that was rescued in the 2009 bailout by the CBN. In January when the Asset Management Company of Nigeria (AMCON) started buying the non performing loans of rescued banks, Oceanic Bank’s stock jumped up by 54% and it received more than N200 billion from AMCON.

 

On Dec 31 2010, Oceanic Bank closed at N2.5, On Jan 15 it was trading at N3.85, up by 54% backed by high volume. It is only natural for stock price to re-treat after such a huge spike in about 2 weeks. On April 21, the stock closed at N 1.72. That is a decline of 55%, almost exactly the same amount it increased in January.

     

The news of collapse of merger talks definitely had an impact on Oceanic Bank as its stock has fallen 15% since April 12.

 

What do we think?

 

 

Oceanic Bank’s stock price currently depends upon the news of possible mergers. Just because the merger with First Bank failed does not mean that Oceanic Bank will not find another deal very soon. Oceanic Bank owns top properties in Victoria Island and Ikoyi and will gain from their valuations as the real estate sector recovers.
Apart from this the Bank has taken a lot of measures to ensure that practices that led it its near collapse do not happen again. Our target price for this stock stock is N 2.20 for 2011.

Summary and disclosure

 

 

Easykobo analysts are positive on Banking sector and have a buy rating on both these stocks. We do not own any of these two stocks. We will advise you to consult your financial advisors before making any investment decisions.

 

 

 

EASYKOBO.COM is an interactive financial information hub for the Nigerian investor.

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