TRADING activities on the floor of Nigerian Stock Exchange, NSE, closed with the NSE All-Share Index and Market Capitalization dropped by -0.56% to close on Friday at 40,819.72and N13.478 trillion respectively.
Consequently, three indices appreciated during the week with the exception of the NSE 30 Index (-0.68%), NSE Banking Index (-2.00%), NSE Lotus Islamic Index (-0.16%), NSE Industrial Index (-0.28%), and NSE ASeM Index (-0.45%).
The Nigerian Stock Exchange reported that a turnover of 1.586 billion shares worth N26.921 billion in 22,238 deals were traded this week by investors on the floor of The Exchange in contrast to a total of 3.752 billion shares valued at N62.116 billion that exchanged hands last week in 22,109 deals.
According to NSE the Financial Services Industry (measured by volume) led the activity chart with 1.113 billion shares valued at N8.765 billion traded in 11,102 deals; thus contributing 70.19% and 32.56% to the total equity turnover volume and value respectively.
While the conglomerates services industry followed with a turnover of 158.526 million shares worth 989.503 million in 1,640 deals, the third place was occupied by Consumer Goods Industry with 92.421 million shares worth N5.864 billion in 3,307 deals.
The Nigerian Stock exchange further said that trading in the top three equities namely- UBA Capital Plc, Transnational Corporation Of Nigeria Plc and FBN Holdings Plc measured by volume accounted for 450.010 million shares worth N2.946 billion in 3,889 deals, contributing 28.37% and 10.94% to the total equity turnover volume and value respectively.
Also traded during the week were a total of 113,744 units of Exchange Traded Products (ETPs) valued at N2.427 million executed in 22 deals compared with a total of 40,862 units valued at N992,697.40 transacted last week in 14 deals.
Similarly, there were a total of 100 units of Federal Government Bond valued at N104, 398.48 executed in 1 deal compared with a total of 420 units valued at N480, 609.28 executed in 3 deal transacted last week.
In terms of summary of price changes, the NSE reported 33 equities appreciated in prices during the week higher than 32 equities of the preceding week.
It also reported that 46 equities depreciated in prices lower than 51 equities of the preceding week, while 121 equities remained unchanged over 117 recorded in the preceding week.
Skye Bank achieved a reasonable growth in profit last year without improving revenue.
That isn’t likely to be repeated this year. Revenue weakness is persisting for the bank and gross income isn’t expected to be reasonably better than what it earned in 2012. Cost moderation shielded profit from the revenue weakness last year.
This year, loan loss provisioning has doubled and eroded profit margin, leaving high prospects for profit to drop to a three-year low.
The outlook however seems to obscure significant progress that management has made on cost control.
Mr. Timothy Oguntayo, Group Managing Director/Chief Executive Officer of the bank, has succeeded in putting key operating costs in check. Only the loan loss expense appears to remain out of his control for now. The problem is that the surge in provisioning is reinforced by disappointments in all the key revenue lines of the bank.
Second quarter operations ended with gross earnings of N63.88 billion, which is a drop of 10.2% from the corresponding figure last year. Both interest and fee-based earnings went down during the period with investment and other operating income leading the drop at 13.8% to N12.62 billion. Its investment portfolio has declined by 11.7% to N198.12 billion from the closing figure last year.
Based on the growth rate in the second quarter, gross income is projected at N128.5 billion for Skye Bank at the end of 2014.
That will be a flat growth over the full year revenue figure of N127.34 billion the bank posted in 2013.
This indicates that the bank isn’t likely to improve revenue for the second year running from the N127.73 billion it reported in 2012.
The bank earned an after tax profit of N5.18 billion at the end of the second quarter, which is a drop of 31.1% from the corresponding figure in 2013. Based on the current growth rate, the bank is expected to close the current year with an after tax profit of N11.9 billion, the lowest in three years.
This will be a drop of 25.7% from the peak profit of N16.02 billion the bank reported in 2013.
Such a significant drop in profit is not expected from any other listed bank this year.
Despite a general slowdown in earnings growth in the banking sector this year, banks are not expected to suffer profit declines.
A drop in profit will break the profit recovery/growth move that Skye Bank has made in the past two years. The bank’s profit had dropped by nearly one-half in 2011 while a strong recovery followed in 2012.
Profit weakness is driven by the doubling of loan loss expense at N5.01 billion during the review period. It claimed 7.8% of gross earnings at the end of June against 3.5% in the second quarter of last year. Other main expense lines are virtually under control.
Interest cost dropped ahead of interest income by almost 24% to N20.73 billion, leading to an improvement of 4.3% in net interest income.
This is against a flat growth in deposit liabilities, indicating the lowering of average cost of funds for the bank this year.
Operating cost was flat at N30.88 billion at the end of the second quarter, which is a feat accomplished in a rising cost environment.
Against the drop in gross earnings however, operating cost margin has increased from 43.4% last year to 48.3% at the end of the second quarter.
The result of the cost-revenue relationship of the bank this year is a loss of profit margin in the second quarter.
Net profit margin has declined from 11.8% in the corresponding period last year and from 12.6% in December to 9.1% at the end of June, one of the lowest in the banking sector this year.
The bank earned 44 kobo per share at the end of the second quarter, down from 64 kobo in the same period last year. Earnings per share are projected at 90 kobo for Skye Bank at full year.
This will be a drop from N1.21 at the end of 2013 from which the bank gave shareholders a dividend of 30 kobo per share.
The bank’s operating difficulties centre on the inability to grow revenue.
Despite some cost control success, it is devoting increased proportions of gross earnings to key expense lines in view of the revenue growth constraint.
With costs largely under check, Oguntayo needs to step up revenue growth in order to raise his bank’s comparatively low profit margin and improve profit outlook for the year.
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