I have not put down my bet yet but I am committed to putting down a bigger bet on Stanbic than in previous stocks I have invested in.
As an investor I am looking for three basic criteria in the shares I buy – a strong franchise, strong management and reasonable discount on the value of the company as I see it. If those satisfy my criteria then I can speculate on things like growth prospects and stuff.
With 70 branches Stanbic is the biggest bank in Uganda by branch network. With more than one trillion shillings (Sh550m) in assets under control is the biggest bank in this category by far the same with customer deposits and customer advances. This is as big a monopoly of the sector as you can hope to have, that means Stanbic has pricing flexibility. This could allow them to price their products at a premium or undercut every one in the market and profit from larger volumes – at 15% they have the lowest base lending rates in the market.
A strong franchise aside sustained profits will be guaranteed by strong management. The Stanbic group management is largely above board but return on equity figures consistently above 30% for the last four years lends further credence to their ability to show a return for their investors.
Analysts are agreed on the fact that share offer is discounted when you consider the bank’s future business. Analysts believe the business is under valued by between 30 to 60% which would put the intrinsic share value at about sh115 a share.
So given the facts it is a better than good buy.
In addition I see significant growth in revenues with the bank’s determination to shift more of its portfolio to higher earning customer advances compared to its current bias towards the less yielding government securities. With the shift will come risk but I believe the management can manage those quite well.
I am also looking at the bank winning a lot of oil business for itself when oil drilling starts in western Uganda next year.
The bank’s plan to introduce mortgage is one to look out for. In Kampala alone there is a 50,000 house deficit and if Stanbic can become a big player in this market the opportunities are huge.
The major risk to the bank is increasing competition but I don’t see any credible challenge to the bank in the n ext five or so years.
So on the basis of the above I will bet my leg 😀
