Abbey Mortgage Bank Plc has emerged as the best-performing mortgage stock on the Nigerian Exchange (NGX), delivering a 20% YtD gain as of March 20, 2025, building on a 35% return in 2024.
Abbey has now rallied 291% in five years, climbing from N0.92 in 2019 to N3.60.
With a 1.11% dividend yield (N0.04 per share), Abbey’s total return stands at 21.11% YtD.
Earnings per share surged 33% to N0.12, fueling expectations for a higher dividend payout for the 2024 financial year.
Yet, Abbey’s 2024 unaudited financials reveal a growing reliance on short-term investments.
This shift raises a fundamental question: Is Abbey still a mortgage lender at heart, or is it evolving into an investment-heavy financial institution?
Numbers that tell a story
Abbey’s 2024 financials reveal a clear shift in income composition. The bank recorded a 58% increase in gross earnings to N12.4 billion, largely driven by interest income, which soared by 65% year-on-year to N11.91 billion.
- However, a closer look reveals that only 22% (N2.57 billion) of this interest income came from loans and advances, while a staggering 78% (N9.33 billion) originated from short-term funds and investment securities at amortized cost.
- On the balance sheet, loans and advances declined by 15% year-on-year to N12.046 billion, with mortgage lending shrinking significantly from N12.59 billion in 2023 to N8.53 billion in 2024.
Meanwhile, financial assets have ballooned. Due from banks and financial institutions nearly doubled (+96% YoY) to N24.92 billion, while investments in securities at amortized cost surged to N41.75 billion from N26.78 billion. Equity investments at fair value through profit or loss (FVTPL) also increased by 50% to N827 million.
Shifting priorities: liquidity over mortgage growth?
The pivot to financial investments has been lucrative, with a surge in investment income boosting Abbey’s overall revenue.
- However, this shift comes with rising costs. Interest expenses skyrocketed by 201% to N6.09 billion, while pre-tax profit grew at a more modest 34.88% to N1.28 billion.
- Abbey’s profit margin contracted by 11.42% to 9.87%, signaling that while the bank is earning more, its cost structure is becoming heavier.
- Beyond profitability, Abbey’s growing focus on short-term investments rather than expanding its loan book raises questions about its strategic direction and capital base.
Mortgage banks derive stability from loan origination and servicing, backed by tangible collateral. However, mortgage lending is inherently long-term and capital-intensive, requiring substantial funding to issue loans that may take decades to mature.
With shareholders’ funds at just N9 billion and total assets of N83 billion, Abbey’s financial position appears relatively modest for a mortgage bank.
This raises key questions for investors: Is Abbey optimizing its returns through diversification, or does this investment-heavy approach reflect structural weaknesses in its capital base?
If the latter is true, the bank may need to reassess its funding model to maintain its identity as a mortgage lender rather than evolving into an investment firm.
Abbey’s justification: A strategic shift
According to the bank, the shift is a strategic response to high default rates among developers and mortgage customers, thus opting for risk-free financial instruments over new mortgage exposure.
With its Approval-in-Principle (AIP) for a commercial banking license, the move also reflects balance sheet restructuring ahead of the transition.
Additionally, by increasing its holdings in financial securities, Abbey aims to preserve liquidity and financial strength while awaiting more favorable conditions for mortgage expansion.
Investor takeaways: Valuation & stability
The market rewards profitability, but investors should scrutinize whether Abbey’s growth is sustainable or merely a strategic shift.
From a valuation standpoint, the stock looks expensive with a P/E of 30x and a P/B of 3.89, indicating that investors are paying a premium.
However, the strong EPS growth and a reasonable PEG ratio of 0.90 suggest that the stock is not entirely overvalued. Its low beta of 0.66 also makes it a relatively stable investment.
