MarketViews

My Potential Share Portfolio

African Bank Investments Limited (Abil)

Focus

The focus of the group is to underwrite largely unsecured credit risk through the provision of personal loans to the formally employed emerging market.

Investors’ Opinions

Ok, so now I’m going to look at the P/E ratio of Abil as it generally indicates what investors think about the company’s future.

On the Sharenet site I look the share up using the “Quickshare” function. This takes me to a page with quick fundamental analysis of the company. The p/e ratio is 13.02. Now on it’s own this number means nothing so it’s useful to compare it to other companies in the same sector.

The lower the p/e ratio the better for the company.

History

The company first listed on the JSE in 1998 and looking at past income statements they’ve showed good growth since then. What is encouraging to me is that despite the introduction of the National Credit Act in the middle of this year, the company has increased diluted headline earnings per share by 20% and revenue increased by 18.3%.

Quoted from their reviewed results for the year ending 30 September 2007:

“In addition, the group’s proactive approach to and early adoption of many of the National Credit Act requirements, resulted in a smooth transition to the new Act on 1 June 2007. This paved the way for the unlocking of the opportunities that the NCA presented, resulting in a strong 4th quarter, with sales of new loans up 53% over the same quarter in 2006. Finally, ABIL launched its offer to acquire 100% of the Ellerines group, affording the group the opportunity to leapfrog its growth and expansion strategy over the next 3 to 5 years.”

ABIL’s intention is to “entrench its position as the market leader in a larger, more competitive and fast changing unsecured credit market, fuelled by the introduction of the NCA and a growing and transforming economy.”

Management

What’s encouraging to note is that directors, management and staff holds 5.92% of shares in the company. This always indicates that the company itself and the people that run it have confidence in themselves.

The company is headed by the CEO, Leonidas Kirkinis, who has been with the company since 1997

Forecast

I read Imara Sp Reid’s report on the group and they had the following to say:

“Without taking into account Ellerines, our forecast for Abil for the financial years 09/08 headline EPS growth of 15% to 309.7c for a FPE of 11.2x.” They note that “it is well below management’s forecast of advances growth between 30 and 35% due largely to the ongoing polic of reducing interest rates.”

EPS = Earnings per Share
FPE = Forward PE

Broker consensus forecasts (found under “Subscribers” on the Sharenet site)

Recommendation: BUY

Online Research

In an article on Moneyweb (by David Carte – 14 May 2007) the following was said about Abil – “Abil has much still going for it – rising employment and the ability to take a less cautious attitude to lending…” They plan to increase their network to 700 outlets in the next 2 years.

I also read a very interesting article by Adrian Clayton (Moneyweb: 24 October 2007) where he talks about the pro’s and con’s of Abil’s acquisition of Ellerines. He believes that “the takeover of Ellerines by Abil is a logical transaction that is likely to enhance the value of the combined group over time.”

Have a look HERE at the company’s latest annual report:

Conclusion

I like the sound of this share and their progress on the JSE thus far. They have a sound management team, a high dividend yield and a good growth forecast for the years ahead. The acquisition of Ellerines should boost the company and provide more scope for business in the future.

This is definitely a share I’m seriously considering adding to my portfolio!

If anyone has any comments or ideas about this share please feel free to comment!

Next Time

I have a look at Stefanutti & Bressan Holdings in my next diary post as a possible addition to my investment portfolio.