Navigating Growth: A comprehensive analysis of Societe Generale Ghana 

Share Price (18/08/2023): GH¢0.90                                              Ticker: GSE.SOGEGH

Target Price: GH¢1.87 (Potential Upside: 108%)                            Industry: Finance

Recommendation: Short Term BUY

Company Background

Societe Generale Ghana PLC, established in 1977, stands as the 4th largest financial institution in Ghana. Its core operations revolve around consumer banking, and its strategic focus on this segment has propelled it to a position of market leadership. By consistently introducing innovative products to the Ghanaian market, the bank has solidified its prominence. Boasting a network of 38 branches spanning Ghana, Societe Generale Ghana is deeply rooted in the local financial landscape.

As a subsidiary of SG Financial Services Holding, France, the bank benefits from global expertise and resources. Trading under the ticker symbol “SOGEGH” on the Ghana Stock Exchange, Societe Generale Ghana PLC holds the distinction of being the 17th most valuable stock on the exchange. With a market capitalization of GH¢638 million, it signifies a robust presence in the financial market, reflecting its enduring commitment to growth and shareholder value.

Trading and Operating Summary
Ticker			GSE.SOGEGH		EPS(HY2023)		¢0.22
Share Price(18/08/2023)			¢0.90		P/E(HY2023)		4.03x
52-Week High/Low			¢1.19 – ¢0.59		P/B(HY2023)		0.51x
Market Capitalization(¢M)			638		Debt-to-Equity Ratio(HY2023)		5.79x
Dividend Yield(5-year Avg)			7.27%		Net Profit Margin(HY2023)		23.07%
3-Year Revenue Growth			12.29%		Loan Deposit Ratio(HY2023)		64.84%
ROA(HY2023)			1.87%		Capital Adequacy Ratio(HY2023)		21.88%
ROE(HY2023)			12.71%		Cash Ratio(HY2023)		26.02%

 

Performance History

			FY 2020	FY 2021	FY 2022	HY 2023
Revenue			663,197,064	746,284,470	938,925,287	686,406,000
%Growth Rate			11%	13%	26%	64%
3-Year CAGR					12%
Operating Profit			515,596,079	602,886,472	520,268,682	242,233,000
Operating Margin			78%	81%	55%	35%
Net Profit			154,208,915	184,329,633	111,065,356	158,380,000
Profit Margin			23%	25%	12%	23%
Adjusted EPS			0.22	0.26	0.16	0.22

 

Growth Prospects:

Societe Generale Ghana PLC has demonstrated remarkable growth in its revenue generation, resiliently navigating challenges such as the domestic debt exchange program’s impact on the banking sector. Amidst these challenges, the bank achieved an impressive 11% growth rate in 2020, followed by a significant surge to 26% in 2022. This consistent upward trajectory reflects the bank’s agility and strategic prowess.

The bank’s growth is further evident in its robust three-year compounded annual growth rate of 12%, underscoring its ability to sustain expansion over time. Particularly noteworthy is its remarkable 64% revenue growth rate during the initial two quarters of 2023, a testament to its strong market positioning and effective strategies.

SOGEGH boasts an impressive operating profit margin of over 50%, coupled with a profit margin exceeding 20% on a year-on-year basis. This consistent profitability showcases the bank’s adept management of resources and commitment to delivering value to stakeholders. The temporary dip to a 12% profit margin in 2022, attributed to the impact of the Domestic Debt Exchange Programme, illustrates the bank’s resilience in overcoming sector-wide challenges. Overall, Societe Generale Ghana PLC’s growth prospects remain promising, driven by its sustained revenue expansion and prudent financial management.

Operational Focus:

Societe Generale Ghana PLC has showcased a steadfast operational focus centered around maintaining a robust deposit base and effectively channeling these funds into lending activities. The bank’s commendable approach is evidenced by its notable 5-year Loan Deposit ratio of 76.03%. This strategy has not only enabled the bank to effectively allocate its resources but has also played a pivotal role in mitigating the impact of the Domestic Debt Exchange Programme (DDEP) on the bank’s profitability.

By maintaining a healthy Loan Deposit ratio, the bank has positioned itself to navigate the challenges posed by the DDEP more effectively. This strategic approach underscores the bank’s prudence in managing its liquidity and credit risk while optimizing its lending activities. Moreover, the emphasis on maintaining a balanced ratio reflects the bank’s commitment to sustainable growth and resilience in the face of external disruptions.

Societe Generale Ghana’s operational focus on maintaining a strong deposit base and prudent lending practices not only contributes to its profitability but also reinforces its position as a reliable financial institution capable of delivering consistent value to its customers and shareholders.

Dividend Policy and Future Outlook:

Societe Generale Ghana PLC has demonstrated a consistent commitment to its shareholders through its dividend distribution practices. Over the past 13 years, the bank has maintained a track record of paying dividends, showcasing its dedication to providing returns to its investors. However, it’s worth noting that there have been three instances of missed dividend payments, including the year 2022, which was impacted by the challenges stemming from the Domestic Debt Exchange Programme (DDEP).

Despite the temporary disruption caused by the DDEP, Societe Generale Ghana’s historical dividend payment consistency reflects its financial strength and long-term sustainability. The bank’s ability to pay dividends in the majority of the years underscores its sound financial management and prudent approach to navigating market fluctuations.

Looking ahead, the bank’s commitment to dividend distribution is expected to continue, aligning with its growth prospects and resilient operational focus. As the bank rebounds from the impact of the DDEP and capitalizes on its growth trajectory, shareholders can anticipate the reinstatement of dividend payments in line with the company’s historical performance, further enhancing its attractiveness to investors seeking consistent returns.

Key Takeaway:

Societe Generale Ghana PLC stands out as a promising entity poised for strong future performance. Its combination of robust growth prospects, steadfast operational focus, and a dividend-driven approach positions the company for success. The bank’s consistent revenue growth, even amidst the challenges of the Domestic Debt Exchange Programme, underscores its resilience and adaptability. This growth is expected to translate into elevated profit margins, ultimately leading to substantial returns for shareholders.

Furthermore, the bank’s commitment to maintaining a healthy deposit base and effectively managing its lending activities showcases a prudent operational strategy. This approach has enabled Societe Generale to mitigate the impact of external factors and maintain stability in its operations.

As a testament to its shareholder-oriented approach, the bank’s long history of dividend payments, albeit with some exceptions, reflects its dedication to delivering value to investors. With the hurdles from the DDEP gradually subsiding, the bank is positioned to resume its dividend distribution, bolstering its appeal to investors seeking consistent returns.

Societe Generale Ghana’s strong growth trajectory, unwavering operational commitment, and shareholder-friendly practices collectively set the stage for a promising future. The anticipated increase in revenue, coupled with improved profit margins, is expected to be mirrored in the bank’s share performance, making it an attractive prospect for investors seeking both growth and dividends.

Industry Comparison

Company	Ticker	Share Price  (GH¢)	Market Cap  (GH¢000)	3-Year Revenue Growth(20-22)	Operating Margin(2022)
Access Bank Ghana	ACCESS	3.00	521,843	24%	-27%
Calbank Limited	CAL	0.64	400,349	5%	-136%
Ecobank Ghana Limited	EGH	4.32	1,393,420	17%	-1%
GCB Bank Limited	GCB	3.50	927,500	15%	-24%
Republic Bank Ghana	RBGH	0.54	460,062	13%	-3%
Standard Chartered Bank Ghana	SCB	13.55	1,827,326	6%	-31%
Average		4.26	921,750	13%	-37%
Societe Generale Ghana Limited	SOGEGH	0.90	638,227	12%	18%

 

Operating Margin Analysis:

Societe Generale Ghana Limited stands out as an exceptional performer among its peers trading on the Ghana Stock Exchange, boasting an impressive operating profit margin of 18%. This achievement is particularly noteworthy given the challenging circumstances faced by the industry, with an industry average operating profit margin experiencing a significant decline to -37%.

The bank’s ability to maintain a positive operating profit margin amidst such industry-wide challenges can be attributed to its strategic response to the Government of Ghana’s domestic debt exchange programme (DDEP). The bank’s adept handling of this situation has enabled it to navigate the impact of the DDEP and emerge with a robust operating profit margin.

This outperformance not only underscores Societe Generale’s resilience and effective risk management, but also highlights its capacity to adapt to adverse external factors. By maintaining a substantial operating profit margin, the bank showcases its commitment to preserving operational efficiency and delivering value to its stakeholders, even in a challenging environment.

It is important to note Societe Generale Ghana Limited’s exceptional operating profit margin of 18% sets it apart from its industry peers, emphasizing its resilience, strategic acumen, and adaptability. This accomplishment reflects the bank’s commitment to efficient operations, and its ability to navigate complex financial landscapes, ultimately contributing to its strong standing in the market.

Undervalued Price and Strong Valuation:

Societe Generale Ghana Limited (SOGEGH) presents a compelling investment opportunity with its current share price trading at GH¢0.90, significantly below the industry average of GH¢4.26. This substantial discount indicates a remarkable potential for growth and appreciation in the share price of SOGEGH, positioning it as an attractive choice for investors seeking value.

Furthermore, despite the prevailing economic sentiments leading to an increased Cost of Capital across the industry, SOGEGH stands out by consistently delivering substantial value to its investors. This strong valuation is a testament to the company’s ability to generate returns that provide investors with a favorable return on their investment.

SOGEGH’s ability to offer a discounted share price relative to the industry average while maintaining strong valuation metrics highlights its appeal as a cost-effective investment option with promising growth prospects. This combination of an undervalued share price and robust valuation underscores the bank’s commitment to creating value for its shareholders, making it an enticing prospect in the investment landscape.

Societe Generale Ghana Limited’s current undervalued share price and strong valuation make it an attractive opportunity for investors looking to capitalize on potential share price appreciation and favorable returns, even in the face of challenging economic conditions. This strategic positioning reflects the bank’s dedication to delivering value and sustained growth to its shareholders.

DISCOUNTED DIVIDEND MODEL

GH¢000,000					2023	2024	2025	2026	2027	2028
Net Income					368	441	529	635	762	915
% Growth					231%	20%	20%	20%	20%	20%
Dividends					110	132	159	191	229	274
% Growth					0%	20%	20%	20%	20%	20%
Payout Ratio					30%	30%	30%	30%	30%	30%
Beginning Shareholder’s Equity					1,091	1,348	1,657	2,027	2,472	3,005
Net Income					368	441	529	635	762	915
Dividends					(110)	(132)	(159)	(191)	(229)	(274)
Ending Shareholder’s Equity					1,348	1,657	2,027	2,472	3,005	3,646
Return on Equity					27%	27%	26%	26%	25%	25%

 

LONG-TERM RECOMMENDATION
Cost of Equity					26.79%
LT Growth Rate					3.60%
Sum of PV of Dividends					579,095,839
PV of Terminal Value					374,130,343
Equity Value					953,226,182
Shares Outstanding					709,141,367
Implied Share Price					1.34
Share Price (18/08/2023)					0.90
Upside					49%

 

SHORT-TERM RECOMMENDATION
Forward EPS			0.46
P/E			4.04x
IMPLIED SHARE PRICE			1.87
Share Price (18/08/2023)			0.90
UPSIDE			108%

 

Highlights of SOGEGH’s Investment Potential:

The comprehensive financial analysis presented above underscores the substantial investment potential of Societe Generale Ghana Limited (SOGEGH). By evaluating key financial metrics, growth prospects, operational focus, and dividend-driven behavior, a clear picture emerges of the company’s attractiveness to investors.

One notable highlight is the calculated worth of SOGEGH per share over its lifetime. Considering a Cost of Equity of 26.79% and a Long-term Growth Rate of 3.6%, the estimated worth per share is GH₵1.34. This valuation surpasses the current trading price of GH₵0.90, revealing an impressive upside potential of 49%. This suggests that the market may not yet fully reflect the true value of the company, offering investors an opportunity to capitalize on this undervaluation.

Furthermore, a short-term price target based on the Forward Earnings Per Share has been estimated at GH₵1.87. This projection also exceeds the current trading price and indicates a substantial potential upside of 108%. This short-term perspective aligns with the company’s growth trajectory and strategic initiatives, suggesting the likelihood of strong performance in the near future.

The analysis indicates that SOGEGH is poised for significant growth and value appreciation. Both the long-term and short-term projections highlight the considerable potential for investors to realize substantial returns on their investment. As such, SOGEGH presents a compelling opportunity for investors seeking robust growth and promising returns in the Ghanaian banking sector.

COMPARABLE COMPANY ANALYSIS

PRICE TARGET
P/E			P/B			P/Deposits			P/TBV
Multiple		3.78x	Multiple		0.85x	Multiple		0.14x	Multiple		0.11x
EPS		0.22	Book Value		1.54	Deposits		5.98	TBV		9.29
Implied Share Price		0.84	Implied Share Price		1.31	Implied Share Price		0.87	Implied Share Price		1.04
Target Price
1.01
Current Price
0.90
Potential Upside
13%

 

Comparatively, SOGEGH is currently undervalued with target price potential of 13% based on the valuation from the metrics of its peers which is evident in the table above.

Industry Analysis

Using the Michael Porter’s five forces;

• Competitive Rivalry: High

Free or discounted services by competition and impact of brands converting to high sales.

• Power of Suppliers: High

Main suppliers are Bank of Ghana, Customer deposits, and mortgages and loans.

• Power of Buyers: Low to High

Large corporate clients have high power and retail clients have low power.

• Threat of Substitute: High

Many substitutes offered in the industry. These can be insurance, mutual funds, fixed income securities, equity instruments. Non-financial institutions offer similar services.

• Threat of New Entry: Medium to High

High regulatory requirements and expensive entry cost, Mobile Money financing options, possibility of large banks entering the local market, trust and brand establishment period tend to be long.

Implications

Although the industry is highly competitive, SOGEGH still has a greater market share because of its size, brand establishment and impact, as such, has a higher profitability potential and better share price performance.

Market Analysis

The Ghana Stock Exchange Composite Index shows resilience with a YTD change of 25.46% in August, 2023.

The Ghana Stock Exchange Financial Stock Index is lingering with a YTD change of -18.27%. This is as a result of the impact of the domestic debt exchange programme on the banking system.

The top five stock gainers on the market are;

• TOTAL(YTD-75%)
• BOPP(YTD-31%)
• MTNGH(YTD-45%)
• UNIL(YTD-82%)
• GGBL(YTD-59%)

Also, the top five stock losers dominated by banks are;

• FML(YTD-67%)
• SIC(YTD-48%)
• SCB(YTD-79%)
• EGH(YTD-94%)
• ACCESS(YTD-19%)

The market remains active and liquid which is attributed to the fact that investors are now showing appetite for Ghanaian stocks since the safe haven Government securities have disappointed them with haircut. MTNGH still remains the most actively traded stock on the market.

Economic Landscape Analysis:

The economic analysis provides a backdrop to understand the broader economic context in which Societe Generale Ghana Limited (SOGEGH) operates. Several key indicators highlight the current economic environment’s impact on both the banking sector and investment choices.

GDP Growth: The revised GDP growth rate of 3.6%, down from 5.8%, reflects the economic turbulence that Ghana is currently experiencing. This lower growth rate signifies challenges in various sectors and potential constraints on overall economic expansion.

Inflation: The increase in inflation to 43.1% in July 2023, attributed to rising food prices, indicates inflationary pressures affecting consumer purchasing power. This situation can influence consumer behavior and spending patterns.

Monetary Policy and Credit Ratings: The Bank of Ghana’s decision to raise the policy rate to 30% reflects tighter monetary policy, potentially leading to increased borrowing costs for banks. Additionally, Fitch’s affirmation of Ghana’s Local Currency Rating at Restrictive Default underscores the country’s credit risk profile.

Implications for SOGEGH: The more expensive bank financing due to higher policy rates indicates that banks may need to rely more on customer deposits to fund their projects. In this context, SOGEGH’s consistent focus on maintaining its deposit base positions it well to navigate the challenges posed by elevated borrowing costs.

Furthermore, the impact of the debt restructuring may prompt investors to seek alternative investment options, including equity investments. As one of the leading stocks on the Ghana Stock Exchange, SOGEGH stands out as an attractive investment choice for those diversifying their portfolios. The analysis suggests that the company’s solid financial performance, growth prospects, and dividend-driven approach align with the preferences of investors seeking value and potential returns amid the evolving economic landscape.

Recommendation:

Based on the comprehensive analysis conducted, we recommend initiating a buy position for Societe Generale Ghana PLC (SOGEGH) stock. The favorable assessment of SOGEGH’s financial performance, operational focus, and growth prospects suggests a positive outlook for the company’s future performance and its potential impact on shareholder returns.

The short-term price target of GH₵1.87 presents a significant upside potential from the current trading price, indicating an estimated 108% increase. This projection aligns with the company’s robust revenue growth, operational margins, and consistent dividend payout history. Additionally, the long-term target price of GH¢1.34 reflects a potential upside of 49%, reaffirming the stock’s attractiveness as an investment opportunity.

SOGEGH’s high growth prospects, evident through its impressive revenue growth rates and operational margins, point towards a positive trajectory for shareholder returns. The company’s unwavering operational focus and prudent approach in maintaining its deposit base provide resilience in the face of economic challenges, such as the impact of the domestic debt exchange program.

Furthermore, SOGEGH’s consistent history of paying dividends, except for the exceptional circumstances of the DDEP, underscores its commitment to generating value for shareholders. The combination of growth potential, operational strength, and dividend-driven behavior positions SOGEGH as a compelling investment option.

In conclusion, considering the company’s favorable prospects and its potential for generating attractive returns, a buy position in Societe Generale Ghana PLC is recommended. Investors seeking exposure to a solid financial performer with promising growth and dividend prospects should consider adding SOGEGH to their investment portfolios.