Retail Investors who reached out to Nairametrics on Monday were surprised to see Skye Bank’s stock gain a whopping 10% and top the gainers chart by the close of trading on Monday.
The stock has lost a whopping 42% since July 4th when the CBN announced that it had reached an agreement with key members of the former board and management to resign. Skye Bank shares is down 58% year to date.
The stock thereafter embarked on a straight 7 day losing streak and looked set to touch the 50 kobo floor until Monday’s 10% gain. So what exactly happened?
One theory proposed by our analysts is that the new management may have identified the hemorrhaging of the stock’s market value as one of its key aspect of their damage control initiative. No responsible board will sit and watch their share price plummet to levels that are way below their perceived fundamentals. For the new Management of Skye Bank, a 50kobo stock is not where they think their value should be. Only Unity Bank and Wema Bank had traded in this region in recent times and Skye Bank certainly won’t want to be seen in that frame.
Another could be that the Management was already in advanced talks with a potential investor(s) and that the investors may be worried about the continuous slide in the market value of the company. The lower the share price is, the more difficult it is to justify whatever valuation the CBN and the Bank’s management must have put forward for Skye Bank. A 50 kobo per share Skye Bank values the company at a ridiculously low valuation of about N6.5 billion. At a current valuation of N9 billion, Skye Bank currently has the lowest market valuation in the banking sector. In fact, AXA Mansard at N21 billion is now two times its valuation. This leads us to the third and final theory.
Skye Bank’s market valuation by all standards is now about 10% of its 2015 9 months Net Assets of N145 billion. Even if we assume that half of it (which is unlikely) will be wiped out from the Bank’s equity when it eventually releases its result, it still leaves the bank at a relatively low valuation. Some bullish investors are probably looking at this and seeing an opportunity.
We know we said three theories but there is probably one more which is a norm these days. It could also be that some people may have seen the results and are now basically taking positions in anticipation of a positive market reaction. With the market already saturated with negative news about the bank, a bit of good news such as a less than expected loss when it eventually releases its results could signify a bullish run for the bank albeit in the short term.
As usual we advise retail investors to be cautious and not to get ahead of themselves. There are opportunities in investing in this stock but you have to very sure of your strategy.
Updated
A Bloomberg article Published after this article originally appeared on Nairametrics is suggesting that the reason for the recent gains in Skye Bank shares is because “a major debtor reached an agreement that may help it repay the Nigerian lender.” Here is an excerpt of the article;
[alert-note]Integrated Energy Distribution and Marketing reached an agreement with the Nigerian government to be refunded $87.8 million after it returned an acquisition to the authorities in 2015, Lagos-based ThisDay newspaper reported, without saying where it got the information. Alex Oko, a spokesman for Abuja-based Bureau of Public Enterprises, didn’t confirm an agreement had been reached when contacted on his mobile phone for comment. He said the government is in discussions with the company. [/alert-note]
Good one!