SKYE BANK: AN ATTRACTIVE INVESTMENT OPPORTUNITY FOR 2015

Skye Bank: An Attractive Investment Opportunity       

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Logo of Skye Bank

At below N3 per share and with bright prospects after acquiring Mainstreet Bank Limited, Skye Bank is a good investment, Goddy Egene writes

Investors are in the stock market are now looking up to 2015 after the market closed on negative note in 2014. The Nigerian Stock Exchange (NSE) All-Share Index (ASI), which is the benchmark  to  gauge the aggregate performance of the market  declined by 16.1 per cent in 2014, as against a growth of  47.2 per cent in 2013.

While some stocks recorded higher decline than the ASI, some outperformed the market indicator.  The banking stocks are some that underperformed the ASI.  
One of the banking stocks declined by as high as 50 per cent. The least decline recorded in the sector was 6.8 per cent. However, the depreciation suffered by the banking stocks has offered an opportunity for investors to acquire the equities which are believed  still have prospects despite some regulatory  headwinds in the financial sector.

Market operators have picked Skye Bank Plc as a particular stock that should not be ignored by investors their investment decision given the prospects in the bank. According to them, Skye Bank’s recent acquisition of Mainstreet Bank Limited (MBL), has even raised the future prospects of the financial institution.

They believe that  at N2.66, the stock of Skye Bank offers an attractive buy opportunity for investors given the value the acquisition of MBL will add  going forward.

Corporate profile
Skye Bank Plc evolved into one of the top financial institutions in Nigeria, after its consolidation exercise in 2006. The bank operates as a group that provides facets of financial products and services powered by a purpose built technological framework that supports the service delivery process to customers. With a cumulative wealth of experience that spans over 50 years, Skye Bank is historically one of the oldest banks in Nigeria and West Africa.  Skye Bank has over 450, 000 diverse shareholders.  Its vision is to be a leading and first class commercial bank and a mission to distinguish itself in the banking industry through excellent service quality steeped in the use of information and communication technology (ICT).

Skye Bank’s core values include: service excellence, integrity, continuous learning, partnership and trust. Skye Bank has subsidiaries in Sierra Leone, Gambia and Guinea.

The bank has Tunde Ayeni as chairman and Timothy Oguntayo as managing director/chief executive officer. Amaka Onwughalu  is  deputy managing director. Ibiye Asime Ekong and Mr Dotun Adeniyi are executive directors.  Other non-executive directors include:  Vinay Tuteja,  Victor  Adenigbagbe,  Micheal Tarfa,  Jason Fadeyi ,  Mr. Babajide Agbabiaka; Olakunle Aluko, Abdul  Bello, Ammunna  Ali, while Mr Victor Odozi  is an independent director.

Nine months results

Like most of the banks, Skye Bank nine months result ended September 30, 2014, showed the impact of stringent regulation in the banking sector by the Central Bank of Nigeria (CBN). The bank recorded gross earnings of N97 billion in 2014, down by four per cent from N102 billion posted in the corresponding period of 2013. Profit before tax and profit after tax fell by 15 per cent from N14.5 billion to N12.3 billion and N11.6 billion to N9.8 billion respectively. However, quarter-on-quarter, the pre-tax profit of N12.3 billion represented a growth of 33 per cent.
With gross earnings of N97.1billion, the bank was able to reduce its interest expense by 15 per cent year-on-year to close at N30.3 billion compared to N35.7 billion as at September 2013.

Acquisition of Mainstreet Bank

In a deft move that is set to boost its position in the banking landscape, Skye Bank successfully acquired MBL from the Assets Management Corporation of Nigeria (AMCON). MBL has nine subsidiaries and a large distribution network comprising of 201 branches across 35 out of 36 states in Nigeria and the Federal Capital Territory, Abuja. It equally has nine cash Centres and 205 Automated Teller Machines (ATMs). MBL’s  last  audited report and accounts  for the year ended December 31, 2013 showed that retail and commercial banking contributed 78 per cent, 36 per cent, and 18 per cent of total deposits, total loans and profit before tax respectively. Also, Mainstreet Bank’s savings and demand deposits accounted for 21 per cent and 43 per cent of deposit mix, which also demonstrated its focus on these two segments.  These are huge value being brought to Skye Bank.

Analysts hail acquisition

Financial and investment analysts have hailed the  acquisition saying it has brightened future prospects for Skye Bank. According to them, the acquisition has placed Skye Bank on the investment watch list considering the immense potential and synergies that would come from the deal.

The analysts said if  the post-acquisition integration is handled very well, Skye Bank could ride on the back of the  acquisition to become one of the biggest and largest banks in the country in terms of branch network.

For instance, Group Head, Research, Lead Capital Plc, Sadiq Waziri, said the most significant gains to Skye Bank would come in terms of the expanded branch network and the resultant increase in customers, particularly savings and current account depositors, which are the cheapest form of deposits.

“Mainstreet Bank was formally Afribank, which was established in 1959; the bank is endowed with a lot physical assets - properties in prime areas, which Skye Bank would benefit from,” Waziri said.

Also speaking in the same vein, Partner and Head of Equity Research at Exotix Partners LLP, Kato Mukuru said the deal was a major positive step for Skye Bank.
“While we do not have enough detail on the transaction to comment on the financial impact, but I can safely say that this deal is nothing short of transformational for Skye Bank and if executed well, it could put them in a position to enter the elite group of tier 1 banks,” said Mukuru.

According to him, “Scale is critical to banking in Nigeria and we all know that this acquisition fills a major regional gap - the North, in Skye Bank's current distribution.”

To the Head of Research and Intelligence, at BGL Plc, Mr. Femi Ademola, the acquisition could enhance the performance of Skye Bank.

“I think the acquisition is very positive for Skye Bank Plc. It will improve the Skye Bank’s capital adequacy and liquidity ratios since most of the Mainstreet Bank’s assets are invested in very liquid assets. Consequently, it is expected that the acquisition will also help to boost the Skye Bank’s profitability in the future," he said.

Also speaking, Head, Trade Execution, Securities Africa Financial Limited, Akinkunmi Popoola, said the larger  branch network would enable Skye Bank to mobilise more low cost deposits and enhance its lending capacity, which will translate to improvement in loan-deposit ratio as the bank can rely more on its own deposits to grant loans to its customers.

“This is helpful at a time like this when liquidity of banks generally is threatened by the raising of Cash Reserve Requirement (CRR) on public funds by the Central Bank of Nigeria (CBN). Investors and shareholders should expect to see value creation in form of capital appreciation and improved dividend because ultimately the bigger Skye Bank should be able to post decent profit going forward. The banking sector will also benefit as the development is expected to emphasise the banking sector as the preferred sector by prospective investors,” Popoola said.
The benefit, he said, would also spread to the larger Nigerian capital market in terms of trading activity and capitalisation.

Integration process

As part of efforts to integrate MBL into Skye Bank operations,  the bank has appointed   Onwughalu as interim managing director for MBL and   Adeniyi as an executive director. The bank said that the interim management board was expected to steer the affairs MBL in the next six months. According to Skye Bank, the appointments would afford the bank the opportunity to pursue the integration of the operations of the two banks.