NCB Equity Analysis

Valuation

To value NCB we opted to use a residual income model and a historical Price to Book approach. The latter was utilized to incorporate into our analysis the possible scenario of sentiment, which has been fairly negative for the stock for the majority of the last two (2) years, failing to improve, resulting in the current trading multiple remaining over the next year.

We utilized several assumptions for the residual income model, in arriving at our projections of total comprehensive income for the financial year 2024. The first of which is positive but slowed economic growth, which impacts business lines such as commissions and fee income, as well as insurance premium growth. We also assumed that the financial markets, particularly the debt markets, notably the market for Jamaica Government securities, will see a better price performance in 2024 relative to 2023 as we expect that by mid to late 2024, there will be a concerted global push towards less restrictive monetary policy. Given these assumptions, along with a cost of equity of 11.7%, we arrive at a multi-stage residual income model valuation for NCB of $83.91

To supplement this valuation, we utilized the prior mentioned historical P/B for NCB along with our forecast of the book value for the end of the 2024 financial year. Given our macroeconomic and capital market assumptions that fed into the total comprehensive income forecast for NCB as well as an expectation of a normalization of dividends, we arrive at a forecasted book value per share of $76.83 at the end of the 2024 financial year. Currently, the stock trades at a multiple of roughly 0.97x book value, hence in the scenario that sentiment does not improve, and the stock continues to trade at a similar multiple, this would give us a fair value target of $74.56, which effectively acts as the lower bound of our price target. As such, our current fair value target price range is $74.56-$83.91, with a final target arrived at by taking the simple average of $79.24.

Based on the closing price as of January 5, 2024, of $67.02, we estimate a one-year total potential upside of 19.1%. As such, we recommend that investors overweight NCBFG. There however remain caveats that include the continued depressed sentiment in financial sector stock, which may or may not improve or even worsen. In addition to this, the finer details on the pending APO have not yet been fully disseminated and its potential impact on per-share profitability (given dilution) and sentiment cannot yet be fully assessed.