NPF Microfinance Bank released its 2014 FY results showing EPS rose 28% to 23kobo per share. The company also followed this result with a 15kobo dividend yield setting up for an impressive end of the week rally that help the share price pop. So is this a buy opportunity? Here is our review of the results and take on current share price.
Revenue
- We observed net interest income increase of 7.4% Year on Year (YoY) was aided by Q4. The company recorded N444million in Net interest income in that quarter compared to the next highest which was N307million.
Profits
- The company also recorded a 28% increase in profits yoy. However, a closer look at the results shows the company did post a fourth quarter loss of N46million in 2014.
- A closer look also shows this was because operating expenses rose to N426million that quarter (closest was N345million in Q3).
- The company did not provide notes to the accounts making it difficult to determine why expenses rose that high.
Loans and advances
- We also observed NPF had a total loans and advances of N6.5billion at the end of the financial year.
- However, customer deposits was N4.8billion suggesting that they carry out proprietary lending.
- However, with lending now exceeding deposits and equity by 1.5 respectively, there is risk to depositors funds.
Retained earnings and dividends
- NPF proposed dividends of 15kobo per share which translates a to gross dividend yield of over 10% as at when the result was released.
- However, that translates to a gross dividend payout of N342million. If they pay that out of current year’s profits of N478milllion then retained earnings will just be N64million (pending Q1 results).
- In fact, out of the profits of N478million, N119.4million will be transferred to Statutory reserves leaving the company with just N358million.
- Therefore, the they are actually paying 96% of available profits as dividends.
- The danger in this is that, the company doesn’t have the financial buffer retained earnings provides when things don’t go well in future.
- It also looks like they rely heavily on Share Capital, Share premium
Cash to pay dividend
- NPF has a cash balance of N3billion as at December 2014
- In 2014, it borrowed N700million. It used part of it to fund dividend payment of about N228.6million
- It still has about N471million of that cash left as at December 2014 and will surely help cover dividend payment.
- However, it will need to pay interest on the loan but has adequate cash reserves to cover it.
Share price
- As at time of review, NPF was up 9% and trading at N1.39 which is a P/E of 6.6x
- Dividend yield at this price is still at a high 10.8%.
- Using dividend valuation any price above N1.4 has limited upsides in our opinion.
- NPF was just 99kobo at the end of March 31, which is a 40% gain Month to date, making intending buyers look like they are late into the game.
- Buying now has to be a short term play in our opinion
- In addition to that, the target should be dividend
Disclosure – Nairametrics and the author of this article does not own shares in NPF Microfinance Bank and does not plan to buy shares in NPF Microfinance Bank in the next one week. The author of this article wrote it themselves, and did not write this article on behalf of NPF Microfinance Bank , its associates or representatives. The article is purely their opinion.
