Is Abbey Mortgage {Bank} shifting from mortgage lending to {financial} investments? 

Abbey Mortgage {Bank} Plc has emerged because the best-performing mortgage inventory on the Nigerian Trade (NGX), delivering a 20% YtD acquire as of March 20, 2025, constructing on a 35% return in 2024.

Abbey has now rallied 291% in 5 years, climbing from N0.92 in 2019 to N3.60.

With a 1.11% dividend yield (N0.04 per share), Abbey’s whole return stands at 21.11% YtD.

Earnings per share surged 33% to N0.12, fueling expectations for a better dividend payout for the 2024 {financial} 12 months.

But, Abbey’s 2024 unaudited financials reveal a rising reliance on short-term investments.

This shift raises a basic query: Is Abbey nonetheless a mortgage lender at coronary heart, or is it evolving into an investment-heavy {financial} establishment? 

Numbers that inform a narrative 

Abbey’s 2024 financials reveal a transparent shift in earnings composition. The {bank} recorded a 58% enhance in gross earnings to N12.4 billion, largely pushed by curiosity earnings, which soared by 65% year-on-year to N11.91 billion.

• Nonetheless, a more in-depth look reveals that solely 22% (N2.57 billion) of this curiosity earnings got here from loans and advances, whereas a staggering 78% (N9.33 billion) originated from short-term funds and funding securities at amortized price.
• On the stability sheet, loans and advances declined by 15% year-on-year to N12.046 billion, with mortgage lending shrinking considerably from N12.59 billion in 2023 to N8.53 billion in 2024.

In the meantime, {financial} property have ballooned. Due from banks and {financial} establishments practically doubled (+96% YoY) to N24.92 billion, whereas investments in securities at amortized price surged to N41.75 billion from N26.78 billion. Fairness investments at truthful worth via revenue or loss (FVTPL) additionally elevated by 50% to N827 million.

Shifting priorities: liquidity over mortgage development? 

The pivot to {financial} investments has been profitable, with a surge in funding earnings boosting Abbey’s general income.

• Nonetheless, this shift comes with rising prices. Curiosity bills skyrocketed by 201% to N6.09 billion, whereas pre-tax revenue grew at a extra modest 34.88% to N1.28 billion.
• Abbey’s revenue margin contracted by 11.42% to 9.87%, signaling that whereas the {bank} is incomes extra, its price construction is changing into heavier.
• Past profitability, Abbey’s rising give attention to short-term investments quite than increasing its mortgage ebook raises questions on its strategic course and capital base.

Mortgage banks derive stability from mortgage origination and servicing, backed by tangible collateral. Nonetheless, mortgage lending is inherently long-term and capital-intensive, requiring substantial funding to concern loans which will take a long time to mature.

With shareholders’ funds at simply N9 billion and whole property of N83 billion, Abbey’s {financial} place seems comparatively modest for a mortgage {bank}.

This raises key questions for buyers: Is Abbey optimizing its returns via diversification, or does this investment-heavy strategy mirror structural weaknesses in its capital base?  

If the latter is true, the {bank} might must reassess its funding mannequin to take care of its identification as a mortgage lender quite than evolving into an funding agency.

Abbey’s justification: A strategic shift

In keeping with the {bank}, the shift is a strategic response to excessive default charges amongst builders and mortgage prospects, thus choosing risk-free {financial} devices over new mortgage publicity.

With its Approval-in-Precept (AIP) for a industrial banking license, the transfer additionally displays stability sheet restructuring forward of the transition.

Moreover, by growing its holdings in {financial} securities, Abbey goals to protect liquidity and {financial} energy whereas awaiting extra favorable situations for mortgage growth.

Investor takeaways: Valuation & stability 

The market rewards profitability, however buyers ought to scrutinize whether or not Abbey’s development is sustainable or merely a strategic shift.

From a valuation standpoint, the inventory appears to be like costly with a P/E of 30x and a P/B of three.89, indicating that buyers are paying a premium.

Nonetheless, the robust EPS development and an inexpensive PEG ratio of 0.90 counsel that the inventory will not be completely overvalued. Its low beta of 0.66 additionally makes it a comparatively steady funding.