adminIt appears and this is highly possible that the bank continues posting results which defy most analysts’ forecasts. Regardless, its share trend resembles that of the cellphone giant, Nokia, whose 20 percent market share in handset business cannot help to reboot its share price which had seen a dramatic slide since the turn of the millennium.
It remains debatable whether a US15c ceiling for the biggest bank’s share price is a fair valuation, with a balance sheet beyond the US$1 billion mark, a market cap of US$95,8 million as at end of last month alongside a troubled indigenous banking sector, the CBZ direction is certainly far from convincing.
The bank might to a serious extent be rated as a proxy for the state of banking sector in Zimbabwean economy. Its solid balance sheet size cannot be viewed in isolation as the threat of systemic risk is imminent and speculation of a significant NPL ratio which cannot be below 20 percent cannot be wished away.
The continuous unimpressive fiscal performance of the Government’s national accounts with fiscal deficits burgeoning quarterly is digested with indifference by the market against the background of the market’s perception of the bank’s consideration as the biggest banker to the Government following the de facto elimination of the central banking role.
That fiscal deficits are accumulating at a poignant pace implies inability to deploy funds to high earning instruments, the ever mentioned election mantra could not help the scenario with foreign investors, notably preferring the traditional and well established banking sectors.
Management skills at the bank are quite sound but will not receive the same rating the former founding member of the rebranded bank, Dr Gideon Gono will receive as the comparison makes the current management beneficiaries of an already defined banking philosophy.
Two years ago in an analyst briefing, the former group CEO, Mr Nyasha Makuvise, said the bank was planning to construct a 15-storey headquarters building. The Newlands office project which was to be spearheaded by CBZ Properties failed to take off timeously.
This could be interpreted as the dominance of paper profits in the bank’s book which cannot attract real capital investments.
It, however, remains debatable but remember markets exist by the grace of investors and failure to convince the same will not change the complexion of an investment regardless of how solid its fundamentals might be.
The upside potential of the banking group is set at above 70 percent with most of the analysis setting the share price at between US22c and US25c. This is on the background of a consistent stream of cash-flow and the unassailable benefit of being the custodian of Government funds.
A direct comparison of company fundamentals with businesses in different but related trade definitely points to a heavily undervalued counter. The missing link on the CBZ balance sheet rests on quality more than quantity.
With a forecast NPL ratio of 0,00 percent for Barclays this reporting period, the assertion of an expensive rating might not hold water for a London-based banking behemoth. Barclays carried the tag of foreign banks’ indigenisation in spite of it being the most locally controlled financial institution by both shareholding and management controls.
They simply adopted what is strange at CBZ which is safe banking with non-funded income covering about 90 percent of their operating expenses thus giving headway to a potentially rich trading book which might contribute a significant portion to the bottom line of the institution.
Indeed, the board might require an element of shake-up. This might redefine the strategic direction of the banking group with the majority of board members seemingly exhausted and not sure on what it means to see shareholder value increase outside the basic matrices of increased branch network and satisfying the capital thresholds as espoused by the central bank.
When Basel II redefined the credit risk aspect through dissecting the banking and trading book, the intention was definitely to improve on the quality of the book. By implication this means echoes of meeting Basel II tenets by the biggest bank in the land remains a facade until there is a seismic shift in its over-rating of collateral ahead of cash-flows, capital and business conditions.
Indeed, it might be uneasy for the senior management to admit to getting into an over-drive of lending to business which had never stood the test of a dollarised environment.
However, they might be realising that most of the merchants and traders who received funding just after 2009 had weaker household and corporate balance sheets which saw an upward spike in bad loans. Basing a lending decision on a Zimdollar set-up was always going to be a sub-prime move. Now the market is definitely over-borrowed with CBZ the biggest contributor to the situation.
However, it also remains the bank which championed empowerment of Zimbabwe nationals with attractive interest rates compared to market averages. The PEP factor cannot be overlooked and Dr John Mangudya and his team might be speaking ill of the day they chose to promote start-ups which ended up operating as shells to stock imports without any major benefit to the GDP of the nation.
Going forward, the counter remains a speculative buy but the earlier the senior management realises its growth will not carry the day for them without listening to the concerns of the market, the better it can be if they are to swiftly respond to it.
Christopher Takunda Mugaga is an economist. He is the Head of Research for Econometer Global Capital, a regional finance and economics research firm. He can be contacted on: [email protected] or +263 772 340 353 or +263 776 266 062.
Online Reporter