CRDB shares price puzzle analysts

Prof Warsame
CRDB Bank shares are trading at giveaway price below their book value despite exhibiting handsome returns as a result of good performance. The scenario has left financial analysts puzzled.

According to the share price valuation made by Dhow Financial, the fair value of the stock is 260/- a piece, but was last week trading at 127/- a share, this year’s lowest.  

“We carried a number of stimulation measures on the share prices but the target price was around 260/-,” Dhow Financial Managing Director Prof Mohamed Warsame said.

The analyst said despite investors shunning CRDB stocks,  earnings per share (EPS) stood at 17/30 at the end of last year while dividends offered rose from two shillings in 2008 to nine shillings 2011.

“The problem is individual stock investors are driving the market instead of wholesale investors…small buyers cannot move prices as their demand is minimum,” Prof Warsame said.
 
Another problem, according to analysts, dividends are determinants of share prices on the Dar es Salaam Stock Exchange (DSE) instead of variables like earning per share, shareholder capital, return on equity or return on assets.

“Speaking about stock rating for CDRB shares strong buy,” Prof Warsame said backed by the analysis they carry on the bank share price released on Tuesday.  

CRDB Bank commissioned a study to look at the abnormal performance of its shares, which has a negative correlation between the bank’s performance and market price since listing at DSE in 2008.

Stockbrokers say CRDB bank’s low price was from the fact that the shares were diluted before listing thus creating many stocks and when finding a ratio, because are denominator, produce a low ratio.  “The best way is for CRDB Bank to buy its own shares to reduce their huge numbers at the bourse, thus creating shortages.

In return the prices will jump up,” Core Securities Chief Executive Officer Mr George Fumbuka advised.    CRDB Bank Managing Director, Dr Charles Kimei, said buying its own shares at the bourse was against regulations. Such a move, he added, would in return create capital constraints.

“Banking is one of the highly regulated practice in the market. We are not allowed, though we wanted to do it,” Dr Kimei said. “But may be we were wrong top dilute the shares before listing,” he added.

Dr Kimei
Rasilimali Limited Chief Executive Officer Mr Arphaxad Masambu said they find it difficult to sometime forecast CRDB bank’s performance as in the first and second quarter things might be good but turn upside down in the fourth quarter.

On the other hand, Mr Masambu said “the (local) investors are speculators and not real ones who want to maximise profit in a short period.” 

Despite CRDB share price being low compared to National Microfinance Bank (NMB) price of 950/-, Price-Earnings ratio of the former is higher at 7.50 than of the latter at 6.60. 

Even within the East African Community CRDB Bank’s EPS and PE are on the higher side compared with KCB, Equity Bank and Diamond Trust Bank. 

On top of that, CRDB Bank’s PE is above the industry’s average of 7.41 although CRDB Bank’s share price is far below its peers in the region, which is above 400/- average a piece.
Source: The Daily News,http://www.dailynews.co.tz, reported by Abduel Elinaza
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