Crested Capital back DFCU shares to hit sh850

The DFCU group share price has suffered in recent months, dropping to lows of sh800 per share as the markets grew wary of rising non-performing loans in the banking sector. The share price has gradually dropped over the past 3 years from highs of sh1,190 in 2013.
 
Crested Capital noted in a statement that the DFCU share price has witnessed a downtrend since the beginning of the year as investors were bearish on the banking stocks due to increased risks of higher non-performing loans in the sector.
 
The counter has exchanged 3.8 million shares (about 2% of the company's free float) which translates to a turnover of sh3.2b with most trading activity was registered in July.
 
The counter touched its 12-month low of sh775 in late July before stabilizing at sh800 as sell offers on the counter continue to outpace demand. The sellers are asking for sh800 with no demand to match at the current level. As a result, trading on the DFCU counter has been low in past weeks.
 
However, Crested Capital envisage a change in company fortunes on the Uganda Securities Exchange with the company share price expected to hit sh850 in the next 6 months.
 
Explaining the optimism, Crested Capital said in statement the unaudited half year financial results for the first half of 2016 reveal an improved start to the year compared to 2015.
 
"The company grew incomes whilst costs rose at a slower pace. Investments made in information technology last year are beginning to bear fruits given the lower cost to income ratio so far in 2016," they said.
 
"We think the improved results were also supported by the reduction of the government securities yield curve since a significant portion of the group's incomes are sourced from government securities (22.6% for the FY2015 according to the 2015 Annual Report)," they added.
 
They noted that DFCU management indicated that they made recoveries from previously written off debt owing to the improvement in tea prices and volumes observed in the first half of this year.
 
Crested Capital also noted that their opinion is premised on improved efficiency levels and innovative group outreach programs. "These programs target investment clubs and women doing business that may boost deposit mobilization along with fostering loan book expansion in the long term," they said.
 
However, Crested Capital warned that: "We identify the expected slow recovery in economic activity this year as a risk to this potential growth."
 
DFCU net profit at the end of June 2016 improved by 70.7% to sh23.3b from sh13.7b in the first six months of 2015; this was attributed to a 20.1% rise in net income to sh83.8b in the period under review.
 
At the same time, DFCU's loan book shrank marginally by 1% to sh759.4b from sh766.8b in the six months to June 2015 previously reflecting the slowdown in private sector credit observed in the first half of the year in the bank's sectors of focus (Trade and Agriculture).
 
Liquid assets such as government securities advanced by 16.5% to sh746.2b in the first six months to June 2016 from sh766.8b in the first half of 2015. Subsequently, company earnings per share grew by 70.7% year on year to sh46.9 from sh27.47 in June 2015.
 
Company return on equity and return on assets stood impressively at 9.78% and 1.44% respectively in the first half of this year. The company targets a return on equity of between 16 to 22% and a return on assets of about 3% for the full year.
 
Despite the stellar performance, the company's board of directors did not recommend payment of an interim dividend.