NCB Financial Group Limited | Equity Analysis

To value NCBFG we utilized two different valuation approaches. These included a market-based approach comparing the Price-to-book ratio and a residual income model. Under the market-based approach, we forecasted a 1-year forward book value attributable to shareholders for the Group and compared it to the current P/B multiple of its peer group. We opted to use only other DTIs operating as fairly large financial conglomerates and made minor adjustments to book values given the impact of the new IFRS 17 regulations. An average P/B ratio of 1.08x was observed from this peer group sample. Therefore, given our forecasted BVPS of $81.99, we arrived at a price target of $89.33. Note that NCBFG currently trades at a P/B ratio of 0.96x, which is below the peer group average. As such, this forecast is contingent on an improvement in sentiment towards NCBFG, as well as a recovery in its profitability metrics, which might allow for the stock to trade closer to the peer group average.

In our second valuation approach, the residual income model, we incorporated adjustments to include comprehensive income in our return on equity calculations (hence utilising total comprehensive income as opposed to just net income). Additionally, we projected earnings for the next 5 years for the Group and subsequently subtracted an equity charge to the tune of 12.58%, our estimated cost of equity. Another key assumption of this model is an average return on equity which falls to the cost of capital in the long run (no excess returns). Based on these assumptions, we arrived at a 1-year price target of $83.52. To arrive at our final estimate of fair value we used a simple average of our two model outputs. The ultimate 1-year price target came in at $86.43, which represents an upside of approximately 21.0% compared to the closing price of $71.44 as of August 25th, 2023. We, therefore, assigned an OVERWEIGHT rating to NCBFG as we believe the stock provides an opportunity for an attractive upside. We however caution that downside risks continue to be embedded in the relative lack of positive sentiment around financial sector stocks which may impede the opportunity for price appreciation in the short term.