Tanzania Daily News (Dar es Salaam)

10 July 2012

Tanzania: Study Faults Market Over Dividend Payouts Trend

A RESEARCH has faulted the market for focusing on historical dividend payouts rather than the bank's profitability and future prospects.

The study conducted by Tanzania Securities dubbed 'Equity Research Local Listed Banks' released over the weekend said that the negative trend has always been pushing stock prices below book values.

"In order to sustain and improve from current market price levels, the banks should maintain a good dividend payout and profitability", the report says, adding:

"We continue to believe that the market might be focusing too much on the historical dividend payouts (especially for CRDB Bank) rather than the bank's profitability and future prospects," the report says.

The Dar es Salaam Stock Exchange (DSE) has three listed banks, namely CRDB, DCB and NMB which have seen their stock prices fluctuating most even trading below books values.

The study attributed its recommendations to strong balance sheets growth over 20 per cent in the next three years and profitability of 10 per cent based on Compounded Annual Growth Rate (CAGR). "We project reductions in cost-to-income to below 60 per cent in 2014 from the 63 per cent in 2010.

It also estimated that 2012 EPS (Earning per Shares) of 22/-, 110/- and 150/- on CRDB, DCB and NMB respectively"., the report shows. The researchers, Magabe Maasa and Moremi Marwa both working for Tanzania Securities, recommended the two banks stocks as a good buy and put DCB on hold buy.

The three listed banks have respective Price/Books (P/Bs) valuations of 1.28, 1.50 and 1.20 per cent respectively. The report further indicates that the banks stocks also trading on trailing Price/Earnings (P/Es) ratio of 7.35 per cent CRDB, 6.46 per cent for NMB and 6.37per cent for DCB.

Based on the situation, Tanzania Securities recommends a medium term buy on the CRDB at a price of 150/- with up/down side of 20 per cent. Currently, the bank share trades at 125/-. "Our bullish outlook is based on a promising future outlook, successful continuance expansion strategy, innovative approach to business development, and product diversification," the report says, adding;

"CRDB continues to be a good example of a bank that has resiliently managed to deal with the 2008/09 crisis". The report shows that NMB is reaping the benefit of having a wider branch network, innovation, its recent systems modernization and a strong funding source.

The study forecasts, the bank's total expenses to continue to grow at less than five per cent per annum over the next three years, which is a good buy stock. The report shows that DCB is a hold stock as the bank is finalising plans for right issue to be done in the near future.

"Despite its average past performance and dividend payout policy, we are recommending a hold status while studying closely how the bank will handle all these changes coming already in the pipeline," the report indicates.

The report projects DCB assets to grow at a three years at compounded annual growth rate of 30 per cent while deposits are expected to drive balance sheet growth with commensurate three years of 30 per cent.

A recent study conducted by Dhow Financial on CRDB stock also shows the bank stock current trading below its book value at 125/- instead of at least 126/- a share. The report also blames investors who peg their yield return on dividends instead of earnings per shares and performance.

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