EFG Hermes, an Egyptian financial services company, has doubled its buy rating for CRDB Bank (DSE:CRDB) share on the back of the country’s improvement in the macroeconomic story.
The firm before the coming to power of President Samia Suluhu Hassan said the target buy price was around 220/- but reversed to 453/- a share on improving cost efficiencies.
The firm said in its report ‘Enter President Samia, time for a rethink’ that other reasons behind upgrading the buy target price was due to lower risk charges and attractive 9.3 per cent dividend yields.
“We update our CRDB models and roll forward our estimates to 2025 estimates,” the firm said in the report that also analysed and compared CRDB and NMB Bank. “We maintain our buy rating on CRDB, but raise our target price to 453/- from previously 220/- [since] attractive Post-Covid-19 recovery play.”
Currently the share of CRDB, one of the largest bank in the land was trading 260/- on Wednesday. The report released recently said the significant earnings upgrades were explained by lower risk charges were cost of risk of 1.9 per cent this year against 2.8 per cent last year while improving cost efficiencies—cost income ratio (CIR) of 57.9 per cent compared to 60 per cent last year.
Additionally, the report showed that the target price was obtained after valued CRDB at 1.0x its 2021 priceto-book ratio (P/B), while it is trading at 0.6x its 2021 P/B, implying an attractive valuation.
Finally, with a 77.6 per cent coverage ratio in first half of this year and a 4.6 per cent NPL ratio: “we expect earnings growth—plus19.5 per cent year-on-year in this year—will come from high quality profitability drivers,” EFG Hermes report said.
Over the past three years, the report said, CRDB achieved a notable milestone reducing the Non-Performing Loans (NPLs) ratio to 4.6 per cent at the end of quarter two of this year compared to as 13.4 per cent in 2017.
“This was driven by higher loan penetration into low risk salaried workers loans and an improved loan management process,” the report said. The report projected this year the annual impairment of 75bn/-, which translates to a 1.9 per cent cost of risk down from 2.3 per cent last year.
EFG Hermes said President Samia had a positive start in her first 100 days after enacted policies to improve investor protection, create a more investor-friendly tax environment and lift the country out of isolation and into a multilateral approach towards its previously estranged neighbours.
“Moreover,” the report said, “her presidency is shaping up to be a promising one with an economy that looks poised for growth”. The projected fiscal deficit for this year is only 1.3 per cent against 1.0 per cent last year and the IMF also expects the current account deficit to narrow to 3.1per cent by 2025 on the back of higher gold exports. “Macro outlook under President Samia’s first term looks encouraging,” the report said.
Additionally, the country’s relatively lower gross debt levels as last year the public debt to GDP was 38 per cent leave room to tap international capital markets.
