BusinessDay... the voice of business: Skye Bank offer: Investment will guarantee 22.79 % on RoI

Skye Bank offer: Investment will guarantee 22.79 % on RoI
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BLESSING ANARO on 27 January, 2008 01:00:00
 
That is for just the simple fact that you bought, with  no risk attached
immediately after the offer.
This is largely based on the assumption that the share price of the stock
remained fixed after trading would have actively commenced; post offer. Hence
for existing investors, there is more money to make at a discount rate 33.5
percent which translates to N335, 000 over an investment of N1.0 million.
Besides fundamentals, history of the performance of stocks on the NSE has shown
that investors who put their money in the bank’s stand to realize better
return on investment post offer.
Besides speculative transactions, directors of the bank are promising to kick
off with payment of dividend by the end of the financial year ending September
30, 2008. On the condition that the bank realized a targeted net proceed of
about N47.9 billion, directors of the bank are promising a dividend of 60 kobo
per share in 2008, which represents a dividend yield of 4.3 percent compared
with the offer price of N14 per share. Dividend payout is expected to grow as
the year progresses, hence, a forecast for 70 kobo in 2009 and 80 kobo per share
in 2010. Prospectus to the offer indicates that the bank would grow its earning
power by the years. Figures for Earnings per share (EPS) which shows the ability
of any company to deliver promptly on its return promises to investors indicate
growth in three years (2008-2010). The figure is expected to increase from 151.1
kobo in 2008 to 194.8 kobo in 2010 while earning yield at offer price will grow
simultaneously from 10.8 per cent in 2008 to 13.9 percent in 2010.
Financial status
A five year tracking of the performance of the bank showed that it has been
consistent in growing key performance measuring indices. Gross earnings grew
from N4.33 billion in March 31, 2003 to N39.37 billion in September 30, 2007. It
would be recalled that the bank had its financial year end changed from March to
September after it emerged from the merger of five banks -  legacy banks which
include: Cooperative Bank, Prudent Bank, EIB International Bank, Bond Bank and
Reliance Bank.
The drive for revenue in the bank recorded a remarkable change with a capital
base of less than N30 billion post consolidation. In September 31, 2007, two
years after the conclusion of the first phase consolidation in the banking
sector, the bank recorded a total revenue of N39.37 billion, a growth of 90.38
percent compared with N20.68 billion in the preceding year. Prior to
consolidation, the revenue capacity of the bank by representation was N6.16
billion.
The bank also emerged more profitable post consolidation as net profit margin
improved over the review period. It stood at about 14 percent in 2007, compared
to 11.9 percent in 2006. It was 7.8 percent in 2005 when the entity called Skye
Bank was yet to emerge.
Post offer however, projection indicates that cost of investment may battle
with profitability in the bank as net profit margin is expected to decline from
21.56 percent to be achieved in 2008  to 18.93 percent in 2010.
It is expected that managers of the bank will be on guard to forestall
unnecessary spending which may overheat the system and hamper on profitability
and the ability of the bank to subsequently deliver on return to investors.
Why invest in the offer?
The absolute involvement of Akinsola Akinfenwa, managing director of Skye Bank
in the bank could be a major factor to be considered in investing in the bank.
Breakdown of shareholding structure of the bank suggests that Akinfenwa, the
number one managing personnel in the bank holds tenaciously on potential of the
bank, hence its resolve to own more shares than any other director of the bank.
Statistics show that he controls 0.92 per cent of the aggregate paid- up shares
of the bank as at September 30, 2007 with a direct shareholding of over
69million shares. Meanwhile, 15 members of the 16-man board of the bank have
positioned themselves to share the risk of the running the business by owing a
sizeable chunk of the bank’s shares.
Performance drivers
In accordance with the number of the legacy banks that made up Skye Bank Plc,
there are also five key drivers adopted by the bank to help it deliver on its
promise (supporting people and businesses by assisting them to make the right
connections at the right time) to customers. They include being responsive,
accessible, supportive, consistent development of a sound knowledge about
customers’ needs and providing solutions for everyday life. Hence the slogan
in one of the bank’s advert jingles on T.V “Saying Yes to your Needs”.
As a mark of responsiveness, the bank has so far made an indelible mark in the
real estate sector of the economy partnering state governments and the various
agencies supporting Nigeria’s efforts towards the attainment of the 2015
Millennium Development Goals (MDGs).
The accessibility of the bank is enhanced by the about 200 service outlets its
currently operating across the nation to meet the need of small and large
businesses as well as that of individuals. Lagos has the highest spread of 77
branches, representing 39 per cent of the total 197 branches while the
South-West axis followed with 53 or 26.9 per cent. North branches represented
15.2 per cent of the total. However, the bank will need to beef up its presence
in other geo- political zones in the country to fully serve its purpose.
As part of its efforts to provide solutions to every need of its customers, the
bank has developed an array of banking products which include Skye Rainbow
Savings Accounts tailored towards meeting the educational needs of school
children. Skye Salary Express is a salary advance product geared towards meeting
the unforeseen urgent demands of salary earners before payday. While Skye
Support was designed to enable customers acquire assets or products required to
expand their businesses, Skye Lifestyle will assist them to get finance for
other personal items that will make them live life more comfortably. There are
other products in the bank’s kitty that will help its customers realize their
different goals.
Cutting Edge
The need for value creation culminated in the merger agreement signed among the
five legacy banks that became Skye Bank. Akinfenwa noted: “Therefore it was
with careful analysis, detailed assessments and clarity of thought that the
merger of these particular companies was finalized”. Therefore each of the
legacy banks has contributed appreciably to the current value status of Skye
Bank.
For Cooperative Bank Plc, its experience in handling the grassroots business
people was brought to bear. Before the bank lost its autonomy to Skye Bank its
target clientele were traders, co-operators and artisan. However, its real
strength lied in financing agricultural business people, top of which were Cocoa
farmers. EIB International Bank Plc also brought its expertise in Public Sector
Fund Administration and Real Estate financing into Skye Bank. It would be
recalled that EIB had a strong holding on the activities of the Lagos State
government, an opportunity which Skye Bank is currently utilizing. However, the
erstwhile Prudent Bank had a knack for project finance, being initially
incorporated as a merchant bank. It would be recalled that the bank also had a
big flair for property development projects which Akinfenwa said was borne out
of its commitment to developing the real estate sector and support for
government desire to alleviate the housing problems of the nation.
Today, Skye Bank owns a full subsidiary Company ‘Skye Mortgages Limited’
which is fully focused on tapping the ever growing opportunities in the Real
Estate sector in Nigeria. Reliance Bank had its strength in international trade
finance and foreign operational control, which made it concentrate its services
on the business nerve centres of the country and high income earners, the baby
of the group, Bond Bank Limited which operated for only 20 months preceding the
policy induced consolidation in the banking sector brought to bear on Skye Bank,
a culture of excellence in terms of its robust information technology platform,
service culture and operational processing. Bond Bank’s peculiar service
approach and ambience created in its branches as well as the clientele is a
culture gradually being absorbed by Skye Bank. It will impact greatly on its
bottom-line if sustained.
Skye Bank is perhaps the only bank in operating in Nigeria today that will
never fail to send a congratulatory text message to any of its customers on
special occasions such as their birthday.
Offer in brief
Last penultimate Monday marked the beginning of a crucial journey to turnaround
for Skye Bank Plc as it will be offering about 3.73billion new shares out of its
25billion authorized ordinary shares of 50kobo each to the investment public to
raise net proceeds of about N47.91billion. The figure is less about N2.09billion
or 4.17 per cent estimated as cost of conducting the exercise which is expected
to last till February 20, 2008.
Prospectus to the hybrid offering suggests that the board and management team
of the bank are strategizing to make it more proactive in the industry so as to
deliver expected returns to investors.
An excerpt from the offer document: “The total offer is being undertaken as
part of the long-term strategic plan to strengthen the position of the bank, and
put it in a good position to surmount the challenges of the evolving banking
industry, both locally and internationally”.
However, breakdown of the hybrid offering showed that existing shareholders of
the bank will have an added advantage of buying the shares cheaper through a
Rights Issue   of 1,500,608,958 ordinary shares of 50kobo at N12.50 per share
while new investors will have to scramble for 2,231,599,145 ordinary shares of
50kobo at N14 per share. At the offer price, investors in the public offering
are entitled to a discount of N3.19 compared with the current market price of
N17.19 per share of the stock on the floor of the Nigerian Stock Exchange (NSE)
at the moment while the existing shareholders of the bank stand the chance to
make a more robust return with a discount of N4.69 per share offered by the
directors of the bank.
Ahead
As the bank grows its capital base (shareholders funds) to the current
industry’s benchmark of N100billion, more robust investment activities which
are expected to culminate to improve profitability may ensue. Hence with
proceeds from the ongoing hybrid offering, “Skye Bank’s retail
infrastructure in Nigeria will be deepened, subsidiaries capital will be
strengthened to support business growth, while Skye Bank’s capital network of
branches will be expanded and working capital requirement funded”, stated
directors of the bank in the prospectus to the offering.
It is expected that the bank develop its branches with about N10.97billion in a
period of three years after the proceeds of the offer would have released to it
while investment in subsidiaries six which are APEX Integrated technical
Limited, Skye Mortgages Limited, Skye Trustees Limited, Law Union & Rock
Insurance Company Limited, PSL Securities Limited and Skye Financial Services
Limited gulp over N15billion. The bank will expend over N21billion on making its
Information Technology Infrastructure as well as working capital more robust.