SIB says Co-op stock price right

The Standard Investment Bank (SIB) says the Cooperative Bank of Kenya #ticker:COOP stock is fairly priced, citing possibility of the regulator reining in banks not to raise loan rates by larger margins post-interest rate caps.

Co-op counter has cumulatively gained 16.5 percent since President Uhuru Kenyatta’s mid-October memorandum to Parliament seeking the removal of the rate cap. It averaged Sh15 on Friday.

The rally, witnessed across most banking stocks, was driven by investor optimism on increased return on average equity.

“Our opinion is based on the strong assumption that the regulator will have a hand in how banks ‘behave’ in a non-cap space, thus dampening a vast upsurge in net interest margin (NIMs). On that background, we view the counter fairly priced,” said SIB.

The sentiment on share valuation differs with that of Renaissance Capital who see more upside potential as NIMs surge.

Renaissance recently placed the Co-op stocks in ‘buy’ category alongside KCB #ticker:KCB and Equity #ticker:EQTY signalling it is still the best time for investors to buy more despite the rally.

It tipped Co-op to surge the most by 36.1 percent to Sh21.40 with NIMs improving 50 to 60 basis points per year over the next three years.

SIB agrees that the lifting of the rate caps will uplift Co-op’s NIMs, given that the lender enjoyed a liquidity ratio of 45 percent as of September 2019.

“We are of the opinion that lenders who ran well-oiled machines in the rate cap environment, with regards to growing the topline from both the funded and non-funded income space, stand to gain the most with the removal of the capping,” SIB said.

Credit rating agency Moody’s said in post-rate cap note that it expects Co-op and Equity’s loan book to rise most given their strong focus on small and medium enterprises as opposed to KCB. “We expect Equity Bank and Co-op Bank to benefit most relative to KCB in terms of loan growth as their lending has been constrained most under the lending rate caps,” said Moody’s.