After DRC merger, will Kenya’s Equity Group lead the stock market in 2021?

After DRC merger, will Kenya’s Equity Group lead the stock market in 2021?

Equity Bank’s Chief Executive Officer James Mwangi in Nairobi, Kenya November 12, 2019. REUTERS/Njeri Mwangi Equity Group Holdings’ (EGH) financial strength and diversification make it a solid bet to outperform the Kenyan stock market in 2021, with any snags over Banque Commerciale du Congo (BCDC) in the Democratic Republic of Congo likely to be only temporary.

The merger between Equity Bank Congo and BCDC has run into complications after the DRC’s central bank wrote in a letter that some decisions taken by EGH “do not comply with the legal and regulatory provisions”.

READ MORE: DRC’s problems with Kenya’s Equity Bank and James Mwangi

Issues cited by the central bank include EGH’s plans to “integrate the BCDC’s operations and data into the Equity Group platform”, “set up an initial management committee” and appoint two managing directors.

Analysts argue that the logic of the merger is intact. “There is no fundamental problem” with the integration of BCDC, says Olivier Lumenganeso, a Congolese banker and economist now based in the Netherlands. “The acquisition of BCDC is a fact. It’s a question of form only.” The integration of the processes at the two banks is continuing with the necessary authorisations in place, says Lumenganeso.

Equity Group is likely to respond quickly to the central bank, he adds. “The new entity must be given time to complete its integration.”

Equity Group is “one of the most solid banks in the region,” says Lumenganeso.

It has very strong liquidity ratios and is cheap at current levels, he adds.

The bank, which also operates in Uganda, Tanzania, South Sudan and Rwanda, is diversified enough to be able to withstand some uncertainty in one country. “Of all the tier-one banks, Equity is the most diversified in terms of revenue sources,” says Reginald Kadzutu, CEO at Amana Capital in Nairobi. “Their acquisitions in the region have been strategic and have added an impetus to their return on assets.” Earnings per share growth

Research from EFG Hermes in January argues that a 2021 Kenyan stock market recovery will be led by banks, with Equity Bank – rated as ‘buy’ – the pick of the bunch. EFG Hermes forecasts that the bank will see earnings per share at a growth of 124% this year , as risk charges are normalised and net interest margins rebound. Such growth, combined with potential resumption of dividend payments, would be “strong catalysts for an upward […]

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