DSE stocks selling cheap, brokers say

MAJORITY of domestic stocks listed at the Dar es Salaam Stock Exchange (DSE) are believed to be selling at “deep discount” compared to their peers at the region.

The brokers have it that the shares are trading at discount of between 30 and 50 per cent, because domestic retail investors are focusing mainly on history and dividends of the firm than its fundamental performance and future prospects.

The weekly market commentary report issued on Monday, for the week ending last Friday, indicates that the stocks, namely CRDB Bank, National Microfinance Bank (NMB) and Dar es Salaam Community Bank (DCB) are under priced.

“We are in the opinion that banks (among other stocks at DSE) are currently trading at a deep discount compared to their peers at the Nairobi Stock Exchange with similar business model and market type.

Commenting on the trend, Tanzania Security Chief Executive Officer, Mr Moremi Marwa said that the shares are trading at a discount of between 30 per cent and 50 per cent.

“Our conviction comes from the belief that the domestic retail investors are focusing too much on the historical dividend payouts (especially for CRDB & NMB) rather than the banks’ fundamental performances and future expectations.

As a result, foreigners a left to enjoy the benefit of discount price, he said. The commentary opinion based on the calculation made as per recent released unaudited financial performance for the last year’s fourth quarter which centred on three listed banks.

The calculation shows that CRDB, NMB and DCB are currently trading at Price Per Earning (PE) ratios of 6.36, 6.02 and 2.94 respectively. These are significantly lower compared to PE ratios of 25.2, 16.8, and 15.5 for Equity Bank, KCB and Barclays Kenya, respectively.

“This is one among other factors that attract foreign investors at the DSE for equities that have room for foreign investors,” the report indicates. The three listed banks are also trading at Price Per Net Asset Value (P/NAV) of 1.41, 1.30 and 0.63 for NMB, CRDB and DCB respectively.

These are among the lowest levels when compared with the sector’s benchmarks of around 2.5. “A valuation re-run on these banks compared to their peers at the region and a 20 and 25 per cent earnings forecasts for the short to medium term.

This positions the PE multiple at 8.7, 8.9 and 4.7 yielding relative values of 900/-, 195/- and 475/-. The interest on the banking stocks are mainly driven by the just released relatively strong full-year results of last year.

Accordingly, the current volumes and price trend could be a strong signal to the high expectations on the results especially after the release of audited accounts and dividends announcements.

By ABDUEL ELINAZA, 2nd March 2011