Several banking stocks have slumped in the last 2 years amid concerns about CBN’s uncertain and tight regulation of the banking sector but Jaiz bank is one the few financial stocks that had proven that it’s business model is not just resilient but stands defensive against regulatory challenges confronting it peers.
Jaiz Bank PLC provides Islamic banking products and services. The Bank offers services such as savings, current, salary, and kids savings accounts, as well as working capital, real estate, personal, medical, education, travel, and project finance. Jaiz Bank provides online banking, leasing, cards, and bonds and guarantee. The bank currently generates a sizeable portion of its profit from Islamic-compliant and other related investments; Sukuk bonds.
On a year to date basis, the bank’s stock is down by 2% outperforming the overall NSE index by 8-9%. Interestingly this loss may be reversed before year-end as investors demand a larger chunk of the bank’s outstanding shares. Shares are already up by 8.89% in the last week, 28.95% and 11.36% in 1 and 3 months respectively.
What is driving Jaiz Stock?
In its Q1 result, revenue grew by +38.8% to N2.59bln from N1.86bln it recorded in Q1 2018 which was driven by huge increase in proceeds from Sukuk bond (proceeds from Sukuk bond skyrocketed from N249m to N817m) and other operating income while PBT grew by 225.08% to N476.46m.
Bottomline figure (PAT) followed the same trajectory as it grew by 244.09% to N428.68mln from N124.58mln recorded in Q1 2018. Earnings attributable to ordinary shareholders increased by 190% to 1.45k from 50kobo.
The growth recorded in Q2 financials showed that Jaiz bank is on track to beat its previous year’s result. Here are highlights of the half-year result:
- Gross income grew by 55.8% to N5.74bn from N3.68bn in the previous quarter.
- PBT grew by 292.2% to N906.92m.
- PAT grew by 294.6% to N815.64m.
- EPS also increased by 255% to 2.77k from 78k
I think market expectations of another impressive Q3 or FY 2019 coupled with increasing proceeds from an aggressive build up on Sukuk bond portfolio (which currently prints at N39.9b compared with N19.8b and N6.3b in 2018 and 2017) may be the biggest driver. The bank reported an EPS of N1.82 in 2017 and N2.83 in 2018 which represents year on year growth of 55%. An EPS of 2.77k in Q2 represents 97% of the 2018 EPS of 2.83k which means the bank has enough room to clock 4k
Ordinary shares outstanding as of this analysis is 29,464,249,300.
My forward price to earnings ratio of 11.75 (47kobo divided by expected earnings per share of 4k) means that Jaiz bank is expensive compared to industry peers; when the price-earnings ratioof a stock is higher than the industry average, it means that investors may be factoring future growth. Jaiz bank has been growing profit by 59% in the last 3 years which means it is still cheap relative to its PE multiples.
Just like I shared on Access bank stock analysis, MACD is one of the reliable technical indicators I use to spot emerging trends in the stock, it works best on a weekly and monthly timeframe and has been proven to generate accurate buy or sell signals.
Let us take a brief look at Jaiz bank’s stock on the chart:
Our emphasis is on MACD. You will notice that anytime the MACD 9-day average crosses above the MACD 26-day average, Jaiz bank stock always trend higher and vice versa. In the last two (2) weeks, the bank’s stock has appreciated by 16% after a confirmed crossover to the upside, this coupled with RSI and Money Flow Index above 50 implies that its a strong buy.
The next key resistance is 60k which is 27% upside potential from today’s market close of 47k.
Disclaimer: You are strongly advised to do your research as the opinion shared here are my personal views.