Brokers set higher target for NCB stock

Two brokerage firms have placed higher valuations on the NCB Financial Group stock, NCBFG, above its current trading price, notwithstanding differing expectations of the banking conglomerate’s performance under recessionary conditions.

The stock closed at $136 last week, nearer to its one-year low, and none of the assessments sees it getting back to its record high over the next year. The stock traded at an all-time high of $249 in July 2019, and closed at $220.75 on the day it hit that record. Since then, the stock has fallen 38 per cent.

“We recommend a ‘market weight’ rating on NCBFG at this point, given that the stock currently trades close to our base-case price target of $137.81,” said JMMB in its assessment, explaining that market weight means investors should hold the stock. “We expect a decline in profitability in the near-term because of the economic slowdown and increased provisions for credit losses.”

The brokerage says NCBFG could, in a worst-case scenario, fall as low as $109, but could also rise to $190. That’s an average of around $150.

It also hinted that the target price would be higher – at nearly $160 – were NCB Financial to resume payment of dividends. The bank generally distributes dividends on a quarterly basis, but has put payments on hold since the coronavirus outbreak, while other large fincos have opted to continue distributions to the tiny group carved out for exemptions – holders of one per cent or less of the stock.

“Using the dividend discount model, we arrived at a price target of $159.89,” stated JMMB. “Of note for our DDM model, we anticipate NCBFG returning to its historical dividend pattern in the near term; however, there is significant risk that this may fail to materialise,” the brokerage said.

Proven Wealth expects the stock to trade at around $144 to $150 in a year – putting its fair value at $147.50 – and recommends it as a ‘buy’.

“This presents a 13.2 per cent difference from the trading price of $130.30,” stated Proven in its assessment dated October 2.

Once NCBFG returns to issuing dividends, the total return could inch up to 17 per cent, Proven noted. It placed an ‘overweight’ rating on the stock, noting that investors should buy as NCBFG was expected to outperform the market.

The price was formulated after taking into account the reduced trading multiples in the overall market and making a judgement on future earnings for NCB Financial, which Proven expects to improve for the No. 1 banking group in the next year.

NCB Financial’s September year-end results are pending. The June quarter saw a decline in profit to $7 billion compared to $8.9 billion in June 2019. Revenue totalled $27 billion compared to $23 billion a year earlier.

The banking group holds assets of nearly $1.7 trillion, and capital of $196 billion, the latter having improved by $20 billion over the past year.

The NCBFG stock closed at $137.53 on Tuesday.

steven.jackson@gleanerjm.com