Dashen Bank’s shares continue to witness soaring bids at a recent auction held for shares returned by a diaspora, attracting the biggest offer of over six times the Bank’s par value.
The auction took place on October 13, 2017, in the presence of bidders and the Bank’s representatives at its headquarters on Sierra Leone Street to auction 82 shares with a par value of 1,000 Br.
Amongst the seven bids evaluated during the auction, the highest offer of 6,545 Br came from Endalkachew Mekonnen, an individual investor, whereas the lowest offer stood at 1,215 Br.
During this round, the 22-year-old Bank, Dashen, sold shares worth 82,000 Br. It was lower than the shares sold in the previous rounds. Shares worth approximately 985,000 Br and 2.1 million Br were up for public subscription in the first and second rounds, respectively.
Despite a decline in the number of shares up for auction, the offers have shown an increase in every round.
The bid is much higher than those in the last auctions. Five months ago, Dashen pulled in a bid as high as 5,526 Br per share- 452pc more than the Bank’s par value. In the first round, the most elevated offer was 5,050 Br a share.
Abdulmenan Mohammed, an audit and financial expert with 15 years of experience, found this escalation insensible.
“For the Bank, whose latest Dividend Per Share (DPS) stood at 326 Br, giving an offer of 6,540 Br is not financially wise,” he said.
“It is a highly inflated price. The offer will result in a return of five percent- lower than the recently adjusted saving interest rate of seven percent.”
This, however, does not seem to worry the Bank’s Marketing & Corporate Communications Director, Mulugeta Alebachew.
“We still have a good chunk of return on investment in the industry. This prompts people to pay more money for our shares,” he said, briefing about the rise in the prices of shares of the Bank.
The Earnings Per Share (EPS) at Dashen have been slumping over the past four years although it is still the highest in the industry, standing at 487 Br in 2015/16. Its closest competitor, Awash Bank, recorded an EPS of 371 Br in the same period.
Despite a drop in the dividend, the Bank’s profit has been increasing year after year. In the past fiscal year, it registered a profit of a little over one billion Birr from operations, excluding its investment income from Tana Building and Nyala Insurance, while Awash grossed a profit of 1.4 billion Br.
“A further decline of EPS is expected as there is intense competition and costs are surging in the banking industry,” said Abdulmenan. “Taking these into account, a single share of Dashen should not be over twice its par.”
Inflated offers are not exclusive to Dashen.
Following last year’s directive that instructed banks to sell shares returned by natives of Ethiopia with foreign nationalities, all the banks auctioned shares to the public.
To date, the highest bids were given to Bank of Abyssinia and Dashen Bank with offers 20 and 14 times their par value, respectively.
The same trends hold true for the insurance industry. The highest offer of five and two times the par value was given to Awash and Lion insurance companies, correspondingly.
Source : Fortune