Rwanda: An African reformer. A small, open, landlocked economy in East
Africa with a population of 11mn, Rwanda has been a reformer among
African nations, driven by the policies of President Paul Kagame. We
estimate GDP growth of 7-7.5% over 2010-2011, putting Rwanda at the
upper end of its Sub-Saharan African (SSA) peer group, while average
annual inflation remains under control at 6.1% 2011E.
Bank of Kigali: A classic franchise bank with an appetite for more.
Bank of Kigali is a pure Rwandan play, and has around 30% market share
across key metrics (1H11). Management believes it has a window to
drive the franchise forward into a broader, multi-focused financial
group, to benefit disproportionately from increased financial
intermediation within the economy.
We initiate Bank of Kigali with a HOLD rating and TP of RWF136. We
forecast a 24% credit CAGR to 2013 and margins to remain robust over
the forecast period. Cost growth and fresh capital should subdue RoE
to 16-19% in the near term but RoA is a truer reflection of the
Group’s profitability at 3-4% out to 2013E. We set a fair valuation of
$151.2mn for Bank of Kigali (or 1.5x forward book and 9.8x 2011E
earnings), which implies a target price of RWF136 per share.
A word on the risks. On the macro level, we note Rwanda’s reliance on
donor money, which plugs a large portion of the sizeable current
account deficit (17.3% of GDP 2010, excluding official transfers).
Competition is heating up at sector level with new entrants in and
eyeing the market, while execution risk surrounding Bank of Kigali’s
new strategy is clear.
Africa Matters
