MCB Group Ltd, Mauritius' largest banking institution, has once again delivered strong financial results as reported in its half-year report for December 2024, released on 14 Feb 2025. But at Rs. 470 per share, is it still a good buy?
Let's do some simple maths, ceteris paribus. ⚠️ NOTE: Ethical Investing
Investors should consider the ethical impact of their portfolios. Due to the USD’s role as a reserve currency and resulting proceeds from trade being in USD, banks across the world hold US Treasuries, which help finance the US budget, including military activities and weapon manufacturers.
Ethical investors seeking to avoid indirect exposure to conflict financing should scrutinize their banking and financial sector investments.
It is more important now than ever for investors to consider real life implications of their investment decisions.
Highlights of Half-Year Results
MCB posted a 28.8% increase in profit attributable to shareholders, reaching Rs. 10,015 million for the six months ending December 2024.
This growth was fueled by strong operating income and improved cost efficiency.
Operating Income: +18.1% to Rs. 21,285 million.
Net Interest Income: +16.7%, benefiting from improved margins and a larger loan book.
Net Fee and Commission Income: +12.4%, mainly from trade finance and lending.
Other Income: +30.9%, thanks to higher forex transactions and fair value gains.
Cost Management: +8.9% non-interest expenses, showing good cost discipline.
Asset Quality: -9.9% net impairment charges, reducing the cost of risk to 0.67%.
MCB’s gross Non-Performing Loan (NPL) ratio stood at 2.9%, indicating stable asset quality, which is a key factor for long-term investors.
The bank maintained a strong capital base, with:
Shareholders' equity +16.6% to Rs. 112 billion.
BIS and Tier 1 Capital Ratios standing at 21.2% and 18.7%, well above regulatory limits.
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Future Price Projection Based on Dividend and Forward EPS
Estimating Full-Year Profit and Dividend
MCB's half-yearly profit at the end of December 2024 was Rs. 10,015 million.
Based on historical trends, comparing full-year results to half-year results since 2021, the full-year profit can be estimated by multiplying this figure by 2.07x, yielding Rs. 20,706 million.
The average dividend payout ratio since 2022 has been 35% (excluding 2021, post COVID).
Applying this to the estimated profit:
20,706 × 35% = Rs 7,247.1 million in total dividends
With 258,197 million shares outstanding, the 2025 dividend can be expected at Rs. 28/share (rounded).
Should we assume a dividend yield of 5.11%, being the average dividend yield since 2021, we can deduct a target price of Rs. 547, being 28/5.11%.
Price Estimate Based on Forward EPS
The forward EPS is projected at Rs. 80.19, simply being profit attributable to owners of parent (Rs. 20,706 million) divided by number of shares.
If we apply the current PE ratio of 7.38x, we get a price of Rs. 592.
However, if we take a conservative approach by using the market-weighted PE ratio of 6.86x, we get a price of Rs. 550.
Let's take the conservative one, although noting that MCBG represents 51% of the market capitalization of the 10 largest listed stocks.
Final Price Estimate
Taking the average of the two estimated prices (Rs. 547 and Rs. 550), we arrive at an estimated target price of Rs. 549 per share, an upside potential of +17%.
Of course, this relies on the one pivotal assumption that the Rs. 20,706 million is realized by June 2025 - a forward assumption.
Traditionally, you would value a bank based on its Net Asset Value (NAV). At Rs. 470/share and NAV of Rs. 435/share, the multiple is 1.08x.
Risks to Watch:
⚠️ Macroeconomic uncertainties, including inflation and interest rate hikes.
⚠️ Regulatory changes that could impact future earnings.
⚠️ Currency risks due to its exposure to African markets.
⚠️ Ethical concerns over exposure to investments financing military activities.
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