Investment bank Renaissance Capital has given a ‘Buy’ recommendation for Co-op Bank shares, and projected that the bank will be posting improved financials in the 2022 year. This follows strong business foundations and strategic investments the bank has been making under its Soaring Eagle program.
”We adjust our risk-free rate to 10.5 per cent from 10 per cent on changes in the 10-year government bond. We also raise our risk premium by 50 basis points across the board to account for the heightened risk in an election year,’’ Renaissance said in its recommendation report. These changes increased the cost of equity assumptions for Co-op Bank to 21.5 per cent from 20.4 per cent.
According to the report Coop Bank shares are trading at Price–to–book of 0.7x with a potential Return on Investment (RoI) of 17.9 per cent, respectively.
”For Co-op shares, we raise our Take Profit order (TP) by 12 per cent to Sh. 15.7, implying 20.8 per cent upside potential. We upgrade our rating to Buy from Hold, as we believe that Coop’s earnings stand to benefit from continued economic recovery and a possible moderation in its provisioning charge going into 2022,’’ the forecast by the investment firm reads in part.
Co-op Bank was later than peers in booking impairments, meaning that while the Combined operating Ratio (CoR) in the other Kenyan banks tapered off in 2021, Coop Bank’ stayed elevated, reaching 2.4 per cent in the nine months to 2021.
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Following a 16 per cent Year-to Date reduction in absolute NPLs on account of intensified recovery efforts from management, Renaissance Capital believes that the bank could see some asset quality respite in 2022.
”We estimate Co-op Bank shares are trading at FY22E P/B and P/E of 0.7x and 4.1x, respectively, on FY22E RoE of 17.9 per cent, with an FY22E dividend yield of 12.1 per cent,’’ the said.
