Ecobank: Expect outstanding profit growth in 2014

Ecobank Inc is expected to achieve a sharp recovery and an outstanding growth in 2014 with profit likely to hit a new peak in the year. Its interim result at the end of the third quarter shows that the bank’s management is set to reverse the sharp fall in profit it reported in the preceding year. At the end of the third quarter, after tax profit was already more than double the full year figure in 2013. Full year outlook indicates the bank might not be quite far from tripling profit in 2014.

Mr. Albert Essien, group chief executive officer of the bank, is quite pleased with the bank’s performance trends in the 2014 trading. He said the earnings numbers are evident of operational improvements made in the business. Essien is satisfied for the lowering of the cost-income ratio of the bank as per the interim results. This is the reward for his strategic move to attain efficiency. The result is the stretching out of profit margin, which spurred the high profit growth expected.

The bank posted an after tax profit of N52.87 billion at the end of the third quarter, which is an improvement of 30.2% year-on-year. Profit growth continued to accelerate from the first quarter. The strength in the bank’s earnings performance in 2014 isn’t revealed by the year-on-year growth margin. The high growth force is revealed by the fact that it closed the 2013 operations with a lower profit figure than it reported in the second quarter. Consequently, the third quarter after tax profit figure stands 112.4% above the N24.89 billion at which it closed the preceding year’s operations.

Based on the third quarter growth rate, after tax profit is estimated at N71.4 billion for Ecobank in 2014. This will be a major advance of about 187% over the full year profit figure in 2013. The bank had maintained a record of rapidly growing profit until 2013 when after tax profit dropped by 44.7% from the all time peak of N42.61 billion in 2012.

Ecobank is maintaining a stable growth in gross earnings with a year-on-year increase of 16.6% to N348.73 billion at the end of September. Revenue growth also continued to accelerate from the first quarter. Based on the third quarter growth rate, gross income is estimated at N465.9 billion for Ecobank in 2014, a likely increase of 13.3% over the gross earnings of N411.18 billion the bank posted in 2013.

The bank has maintained a strong growth in revenue in the preceding three years after a drop in 2010. The revenue driver in 2014 is fee-based income, which rose by 25.9% to N136.81 billion in the third quarter. Interest income grew moderately at 10.7% to N207.74 billion during the same period.

The strength to grow profit in 2014 as per the interims came largely from one major cost moderation – operating cost. Operating expenses grew by 8.4% to N179.04 billion in the third quarter and therefore moderated relative to revenue. Operating cost margin declined from nearly 55.2% in September 2013 to 51.3% in 2014.

Impairment losses rose by 27.2% and therefore claimed an increased share of revenue during the review period. Interest expenses also claimed a slightly increased proportion of revenue at 21.7% against 21.5% in 2013.

Overall, the bank achieved a significant cost moderation, which improved profit capacity considerably. A major improvement in profit margin has been achieved. Net profit margin recovered from 5.7% at the end of 2013 to 15.2% at the end of the third quarter.

The bank earned N2.60 per share at the end of the third quarter, up from 95 kobo at the end of 2013. Based on the estimated net profit for the year, earnings per share is expected to be in the region of N2.89 for Ecobank at the end of 2014. The bank paid no dividend to shareholders for its 2013 operations but is expected to resume dividend payment from the 2014 operations.