By Samuel Kutty -
MUSCAT — As the deadline for the close of the initial public offering of the new-float Bank Nizwa is nearing, analysts give a fair value rating to the issue. Islamic finance has become one of the fastest growing segments in the financial markets across the globe especially in regions like Asia, Africa and Europe as borrowers seek alternative avenues for financing.
In GCC, it has been growing at double-digit annual growth rates over the past decade. Today, Islamic banks in the region control a market share close to 15 per cent of the total assets of the banking sector and have become a part of mainstream financial intermediation.
The first of its kind bank to be launched in Oman, Bank Nizwa is expected to face stiff competition in the banking space with bigger banks opening Islamic banking windows and new banks adopting similar Islamic banking practices.
“Bank Nizwa being new with no proven track record of operational performance is likely to command a lower valuation as compared to its major listed peers.
However, considering its growth potential, we opine that the valuation based on the expected book value of 2013 on a PBV range of 1.2 to 1.4 is justifiable, implying a fair value”, say analysts at Al Maha Financial Services in a research note.
The bank is expected to turn profitable from the financial year 2014 onwards, after showing a loss in the initial year of operation. Going forward, improving operational efficiency will lead to higher profitability for the bank.
The net profit margin of the bank is expected to double and return on average equity and is expected grow three folds in the subsequent three years. According to the prospectus, the company plans to pay dividends of 5 per cent and 10 per cent in the year 2016 and 2017 respectively subject to regulatory approvals.
Al Maha research note also compares Bank Nizwa’s financial assumptions to Bank Sohar, because the latter is the only listed bank that is new to the sector, having started operations five years back
At the current stock price of RO 0.153, Bank Sohar offers a return of more than 50 per cent for an investor who subscribed to the issue and is holding presently. The stock presently outperforms the MSM 30 Index.
Bank Sohar stock has also touched an all-time high of RO 0.249, yielding more than 100 per cent to investors, who subscribed to the IPO. The success story of the Bank Sohar IPO issue is likely to act as confidence builder for the current issue.
With low penetration of Islamic banking into Oman, Bank Nizwa has all the opportunity to cash in on the untapped market. Bank Nizwa is being promoted by a group of 93 founder shareholders with Shaikh Saud bin Ali al Khalili as the primary promoter and founding investor of the bank.
The founder shareholders have subscribed to 900 million shares at a price of RO 0.102 per share totalling to a capital of RO 90 million. Diwan of Royal Court Pension Fund and Shaikh Saud bin Ali al Khalili hold 8.33 per cent and 6.67 per cent respectively of the pre-IPO share capital.