About the Company
The Bank was established on 1 January 2004, following a merger between Cavmont Merchant Bank Limited (incorporated in October 1992), and New Capital Bank Plc., (incorporated in June 1992). In 2006 the Bank’s holding company, Cavmont Capital Holdings Zambia Plc (CCHZ)’, sought a strategic investment partner and identified Capricorn Investment Holdings Limited (CIH). CIH acquired a 44.2% shareholding in CCHZ in 2007. Cavmont Bank Limited provides an array of banking services which include corporate banking, retail banking, investment and community banking. In 2018 the bank reported a set of results which demonstrated recovery from the previous 6 months ended 30 June 2018. According to the consolidated results the group highlighted a loss of K15.7m for the six months ended 31 December 2018 (June 2018: loss of K50.0m; December2017: profit of K0.3m). The net interest income reduced slightly based on the low growth interest bearing assets while the cost of funding did significantly increase due to low market liquidity.
Financial Performance
According to the consolidated results the strongest growth was reported from the non-interest income which stood at 20.7% compared to the 6 months ending 31 December 2017. This was chiefly due to increased trading volumes and improved margins on foreign exchange transactions as a result of volatility experience in the Kwacha during the period under review. Cavmont’s asset growth remained subdued with held-to-maturity investments showing the largest growth of 23.5%. Despite the minimal growth in net loans and advances, which has been adversely impacted by IFRS 9, the Group remains committed to supporting it clients from various sectors of the economy through prudent and responsible lending. On the funding side, the Group recorded a 5.6% growth in its customer deposits at K820.0m in 2018 compared to K776.1m in 2017. The bank in 2018 issued preference shares of K76.0m which meets the requirements for classification as tier 1 capital which meant the bank ensured that it continued to meet minimum regulatory capital requirements.
However, the performance of the bank has been adversely impacted by increased impairment charges and operating expenses. It is significant to note that the impairment charges for 2018 are as a result of the implementation of IFRS 9 which increased impairment provisions across the entire banking industry. “The impact of IFRS 9 was material, reducing opening reserves on 1 July 2018 by K53.3m and accounting for most of the K8,5m increase in impairment losses in the statement of comprehensive income” (Annual Report, 2018). Moreover, the operating expenses increased by K19.5m year-on-year on the back of increased investment in infrastructure and in staff in order to up skill the Group’s workforce which included the on-boarding of key new human capital resources as a performance enhancement strategy and to remain relevant within the industry.
Stock Performance
Cavmont Capital has one of the most immobile securities on the LuSE. Over the last year, the stock has not change price. Its price to earnings ratio is one of the highest on the exchange at 126 as at 5th April 2019. The PE ratio is an outlier owing to the low earnings per share indicative of an over price security. With a current share price of K2, the market cap (capitalisation) of the company is now at K149 million.
For the most part, the company’s security outperformed the all share index up to January this year. However, all through 2019, it has under performed against the index.
Future Outlook
For now, the bank is in the process of executing its turn-around strategy while operating in a challenging environment. Their strategy will focus on selective growth to improve the overall quality of the statement of financial position, while particular attention will be paid to operational efficiencies, recoveries and rehabilitation of non-performing loans. According to the annual report (2017) the bank is confident that the investments that have been made to improve the infrastructure and up skill the work force will contribute positively to turning around the business and to achieve sustainable results for its various stakeholders. Moreover, asset growth will continue to be selective with a focus on quality assets to protect earnings from material impairment charges.