I will start with why people invest. At Berkshire Hathaway, investing is defined as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power in future.
Remember, the shares you purchase today are parts of an underlying company that, in ten or twenty or fifty years’ time, will have produced an incredible amount.
We are not throwing dart at a board. We are investing in businesses with moving parts which we need to be cognizant of. That is why we want to explore the viability of investing in NCBA stock listed at the NSE.
With this in mind, let us put into perspective the qualities and perspectives that we find immensely attractive in NCBA Bank shares.
1). NCBA Group is a diversified financial services company with leadership in retail digital banking, asset financing and investment banking in Kenya among the listed banks.
It is also the second largest corporate bank and was the first commercially bank to be awarded bancassurance license. These attributes set the bank in a unique position where it is able to offer bespoke solutions for individuals, SMEs and corporates.
The best way to confirm this is whether customers are speaking with their pockets. For the first 3 months of 2023, the bank’s operating income grew by 18 per cent to Sh. 15.5 billion.
2). One metric that investors are usually keen is return on equity. According to Investopedia, return on equity is a measure of financial performance calculated by dividing net income by shareholders’ equity. This rose from 17.5 per cent in the Q1 of 2022 to 22.7 per cent in the Q1 of 2023 which is impressive.
3). The crown in the jewel of NCBA’s growth in 2023 is the contribution from its regional subsidiaries that investor should take note of. The Tanzanian subsidiary turned profitable in Q1 of 2023 and the regional subsidiaries collectively brought in Sh. 538 million in profit before taxes to NCBA group, an 8.4 per cent contribution.
4). The bank’s non-bank subsidiaries saw a 28 per cent growth in pretax profitability to Ksh 184 million. The best performing unit was NCBA Bancassurance with Sh. 70 million in profit before taxes.
5). On leadership, NCBA Group is led by its group managing director, John Gachora, a master executor who also doubles as the Kenya Bankers Association chairman.
He has successfully led the bank through the merger period to achieve breakthrough financial performance and business transformation in just 3 years. Firing on all cylinders, the NCBA was named by Brand Finance as one of the top 10 brands in Kenya in 2023.
6). For the year 2022, NCBA Group paid a total of Sh. 7 billion in dividends with a total of Sh. 4.25 dividend per share. With the current share price at Sh. 37, that is a dividend yield of 11.5 per cent which matches the returns from the 364 Day Treasury bills.
7). The banking is opening new branches to expand its customer base, serve the existing customers better and grow its deposits base.
8). According to our analysis, the bank could make profits before taxes of at least Sh. 1.5 billion from regional subsidiaries in 2023 and that could be a big deal that could send investing beaming.
9). The books value per share which is the company’s valuation based on its financial statements was Sh. 53. This means that the company is undervalued based on its closing share price of Sh. 37 on Friday, the 2nd of June 2023.
10). Investors would consider NCBA Group a triple play of a growth, dividend and value counter because of its double digit growth in operating income, a dividend yield of 11.4 per cent and trading below its book value per share.