Nations Trust Bank [NTB: LKR62.60], was established in 1999 following the acquisition and rebranding of the Sri Lankan branch of Overseas Trust Bank. The acquisition was sponsored by the Sri Lankan conglomerate John Keells Holdings [JKH : LKR214.1] & Central Finance [CFIN : LKR275.0] where JKH, CFIN & the related entities collectively control 49.9% of NTB. NTB has now emerged to be among the fastest growing banks in the country adopting an inorganic growth strategy through mergers & acquisitions since its inception. NTB currently holds an asset base of LKR88.6 bn (as at 30th June 2011) which indicates a market share of nearly 3%.
NTB has grown leaps & bounds over the past few years through a strategy of organic growth & acquisitions which the company plans to carry into the future as well. The bank currently holds a network of 46 branches, 48 ATM’s, 15 leasing centres and 6 personal banking centres. It plans to open 10 new branches during FY2011 taking the total to stand at 50 branches. Being the exclusive franchisee for American Express credit cards in Sri Lanka, NTB serves as the 2nd largest credit card issuer in the country.
Valuations in Brief
With NTB accelerating its expansion phase with the objective of stepping into the bigger league, coupled with extra boost from the rapid growth in country’s private sector credit and with the impact from successful recoveries, we expect NTB to register LKR1,403.3 mn in 2011E (up 29.4% YoY). With the contribution materializing from the accelerated branch expansion efforts underway, well coupled with the improving overall efficiency levels, we forecast NTB to record net earnings of LKR1,675.1 mn in 2012E (up 19.4% YoY). In terms of earnings to price multiple; the share is valued at 10.3X 2011E earnings and 8.6X 2012E net profits compared to the Banking, Finance & Insurance sector 4Q Trailing PER of 16.3X and market PER of 15.4X. Hence we rate NTB, a BUY.