CRDB shares trade at discount to their valu


CRDB Bank shares trade at a discount of 25 per cent from current market price, according to a report, providing a good bet to stock investors for good returns.

The bank share currently trades at 200/- which a brokerage firm, Zan Securities, said in an equity research report that they are supposed to trade at 245/- apiece. The report, released recently, attributed it finding based on the second stage Dividend Discount Model (DDM) method and relative valuation method.

“We [Zan Securities] believe the fair value of CRDB to be 245/- per share or 25 per cent discount to the current market price. “We initiate coverage of CRDB with a ‘Buy Rating’ and a target price of 245/-,” the report showed.

CRDB is the biggest bank in the country controlling 23 per cent market share. Its share price appreciated by 25 per cent to 200/- since the beginning of this year. The target price was based on two stage DDM where researchers considered the impact of improving loan performance on the future earnings and earnings multiples. The report said it had discounted dividends for five years from 2017 to 2021.

“We have assumed P/BV (price-to-book ratio) of 1.1x, terminal growth of 9.0 per cent and considered the cost of equity at 12.42 per cent,” the report partly reads. The report had it that the strong capital adequacy was a key to future growth. The bank has a tier 1 capital ratio at 1.5 per cent above the required level, and was well capitalised to meet its immediate growth demands.

“CRDB has a reliable line of credit, which is crucial in hard economic times when credit becomes scarce,” according to research. However, the bank Non- Performing Loans (NPLs) were high although still manageable in the near term. “CRDB has been battling rising non-performing loans for more than two years now due to challenging business conditions affecting their borrowers,” report said.

The NPLs reached 13.4 per cent in last year quarter four which was 8.4 per cent above the required rate of 5.0 per cent and the ratio has been growing at a compound annual growth rate (CAGR) of 30.7 per cent.

“This still poses credit risks…but we see CRDB starting to reverse around this negative trend as the business condition starts to improve coming into 2018,” Zan report showed. The report expected CRDB to earn an EPS of 27/- in 2018 and 27/90 in 2019 up from 26/50 in last year.

The bank had a total of 255 branches and 510 ATMs at the end of last year.

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