It’s tough for the smaller players in the banking industry
in Zambia. Cavmont Bank has bared the brunt of competitive forces in the
industry. In the 2014 to 2015 period, the customer lost 15% of its customers in
a zero sum that saw its competitors scoop them up. However, at the same time,
it was able to grow its loan book by over 55%. This is indicative of a strategy
that saw the bank looking to create value through its loan book. And it worked.
Net interest income was up by 43% in the same period.
In terms of the banks performance, operating profit and
EBITDA were up 19% and 17% respectively. Their return on assets was also up 1%
taking it into positive territory for 2015. Loans to assets impressively
increased by 11% to 56% signaling good strides by the lending team in a bearish
market. However, net interest margin was down 3% due in part by the 68%
increase in cost of sales for the bank.
Investors will be pleased by the numbers from the banks
return on capital employed and equity. 2015 saw a 4% improvement in use of
capital employed and equity which were both on par at 24%. However, due to the
timing of the publication of the annual report (mid 2015), we anticipate that
the 2015 to 2016 period was more difficult for the due to the macro measures
that were put in place by the central bank. Tighter liquidity on the market
means not enough resources available to pursue a loan book growth strategy.
Furthermore, despite posting positive earnings in 2015, they still did not
declare a dividend albeit is plowback of 1%. This is testing of shareholders
patience.
Going forward, management will need to look into the
operations performance. Operating cash flows nosedived by 130% leading it into
negative territory. This was attributed to sharp increases in its payment to employees,
suppliers and interest payments to customers. Furthermore, a little dividend
never hurt anybody especially when it could mean continued financial attraction
of shareholders.
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