Karachi, November 22, 2013 (PPI-OT): While the larger banks have rebounded swiftly post the recent SBP directive tying the rate floor on savings a/c to the DR, price performance of selected medium/small banks has been mixed, driven more by corporate developments.
According to AKD Securities, although not under AKD Securities’ formal coverage, AKD Securities takes up the cases of MEBL (proposed acquisition) and SBL (extinguishing of shares) in today’s Daily. In both instances, share prices have been quick to price in initial gains but AKD Securities flags that further gains are possible going forward – MEBL on a potential deal price higher than current market price and SBL on potential valuation rerating where on a trailing P/B of O.3x, it is the cheapest listed bank on this valuation metric.
In this regard, assuming MEBL (premium ROE of 22%+) is acquired at a target P/B of 3x, the indicative transaction value would be at PkR51 .3/share (implying potential upside of 31%). Similarly, if SBL over the longer run rerates to its peer group (BOK/JSBL/KASBB/BIPLISILK) average trailing P/B of 0.53; its indicative fair value arrives at PkR66/share implying potential upside of 70%!
MEBL: As per a recent KSE notice, Vision Financial Holdings Ltd (VFH) has announced public intention to acquire 49.11% ordinary shares of MEBL. As per the current shareholding pattern of the bank, the three major shareholders are Noor Financial Investment Co. (49.11% stake), Pakistan Kuwait Investment Co. (3000% stake) and Islamic Development Bank (9.32%), together accounting for 88.43% of outstanding shares. In this regard, it has been notified that if VFH proceeds to acquire the targeted shares, it will make a public announcement to acquire further ordinary shares of MEBL in accordance with the requirements of the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002.
Provided this transaction proceeds and a tender offer takes place, this shall take place at a price higher of 1) the book value (PkR1 7.08/share on Sep 3013), 2) the last 6m average share price of MEBL (PkR3602/share) and 3) the negotiated deal price (unknown as yet). Considering potential downside may only be –8% (on PkR3G.02/share) while upside potential may range from 9%-30% (on a target acquisition P/B of 2.Sx-3.Ox which yields an indicative target price range of PkR427-PkR51 .3/share), AKD Securities believes investment in MEBL remains an in4he- money option particularly as MEBLs robust ROE (22%+) warrants premium valuations.
SBL: In this case, SBL’s ordinary share capital has reduced by 43.6% from 1433.Smn shares to 808.2mn shares. Correspondingly, the share price of SBL has adjusted from PkR2.32/share (in book close) to PkR3.89fshare at last close, with the increase taking place through the market rather than a straight adjustment as in the case of a bonus issue. Without delving into the merits or demerits of the logistics of the transaction, the reduced share capital should, all else the same, result in a price of PkR4.11/share.
While this presents muted potential upside of -6%, AKD Securities note that SBL trades at a trailing P/B of O.3x, making it the cheapest listed bank on this valuation metric. Going forward, provided SBL rerates to its peer group (BOKIJSBLIKASBB/BIPL/SILK) average trailing P/B of O.53x, its indicative fair value arrives at PkR6.6/share implying potential upside of 70%!