HomeBusiness DigestWhy CBZ was always a takeover target

Why CBZ was always a takeover target

When a mysterious buyer piled into CBZ stock a few weeks ago, market players were not surprised.

By Chris Muronzi

The financial services stock was among some of the most discounted stocks on the market.

Even when compared to banking and financial peers, Zimbabwe’s largest bank by deposits and assets, CBZ was always a tad on the cheap side.

And no one could figure out why.

For many, it came as no surprise. If anything, others had expected it for some time.

Traditionally such discounted valuations tend to attract value investors. Value investors tend to buy a stock because they believe its underlying value is not fully reflected in its present value hence they choose to hold a security until the value is realised.

As a counter, it had a solid dividend policy enunciated as 10% of net earnings.

Valuation Ratios

Company industry sector

P/E Ratio (TTM) 0.44 21.10 21.61
P/E High – Last 5 Yrs. 2.39 22.64 23.83
P/E Low – Last 5 Yrs. 0.00 13.68 13.95
Beta 1.15 1.34 1.31
Price to Sales (TTM) 0.20 8.53 10.58
Price to Book (MRQ) 0.10 3.30 3.18
Price to Tangible Book (MRQ) 0.13 3.39 3.47
Price to Cash Flow (TTM) 0.50 18.74 19.90
% Owned Institutions 0.29 0.50

Research into the stock shows that CBZ has for years been a huge turn off for investors on the local equities market.

For example, in the last two years, CBZ’s valuation metrics showed that the stock was trading at a discount to its book value.

As at July 2017, CBZ was trading at a discount of 76% to its book value.

In the same period last year, the counter was still trading at a discount to its book value of 76%.

This was despite ranking highly on dividend yield stocks at a rate of 4,67% in the period and occupying fourth position in terms of payouts.

As of this week, the stock was trading at a price-to-book ratio of 1,0. This implies a discount to its book value of 82%.

Essentially, this means that investors are not factoring in the dividends in their valuation of the stock.

Armed with this information, a smart investor could have decided this was a good buy. And it was.

A look at relative valuations of the counter also shows that the stock was trading at a discount to its peers despite its seemingly high earnings per share.

The P/E ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings.

In the full year to December, CBZ reported total comprehensive income of US$75 233 257 from US$29 676 460 million in the prior year.

The group had total assets amounting to US$2,449 billion and total liabilities of US$2,143 billion, implying a book value of US$315,8 million.

As of Wednesday, the counter was valued at US$343,6 million. This means the company was trading at a premium of 1,08% to its book value. This is after a 222% year-to-date gain. As at April 1, the counter had a market cap of US$113.39 mn against book value of US$315,8 million.

In July 2017, another stock, NMB, a bank with solid management and stable earnings, had also not benefitted from the re-rating on the ZSE.

NMB was trading at 28% to its book value, while ZBFH was trading at 32% to its book value.
Last July, NMB was trading at 93% of its book value. This week, NMB was trading at 55% of its book value.
NMB Valuation Ratios

Company industry sector

P/E Ratio (TTM) 5.84 19.14 19.24
P/E High – Last 5 Yrs. 24.16 18.78 23.82
P/E Low – Last 5 Yrs. 2.63 11.72 11.63
Beta 0.85 1.47 1.43
Price to Sales (TTM) 0.84 5.93 5.91
Price to Book (MRQ) 0.55 2.90 2.78
Price to Tangible Book (MRQ) 0.58 2.95 2.86
Price to Cash Flow (TTM) 4.24 20.93 22.86

A look at banks’ P/E ratios shows investors do not find the stocks attractive.

Instead, investors were paying a premium for stocks in companies such as BAT and Delta. BAT had a P/E multiple of 40 and Delta at 22 as at July 31 in the same period two years ago.

PPC had a P/E of 106,50, the highest on the ZSE.

But after this latest acquisition, the identity of the mysterious shareholder will either be laid bare or the market will have idea who it is inadvertently.

With a shareholding that big, an investor is expected to request board representation in lieu of the equity. From the choice of board appointments, the identity will be known.

Analysts held the view that some of the local banks were well run and should reflect this in their values.
“These local banks are well-run management-wise. Look at NMB and FBCH, they are well-run institutions. While P/E multiples have re-rated, banks are lagging behind,” the analyst said.

But no fund manager has taken a risk on the counters as yet.

CBZ’s chief executive Blessing Mudavanhu referred all question to group corporate affairs manager Matilda Nyathi at the time of going to print.

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