In brief
Rating Summary:
We update our rating on CalBank Plc (“CAL”) to “SELL” following an upward revision of our fair value to GHS 0.76 per share, which keeps the valuation below the current market price of GHS 0.94, implying a downside of 19.5%. The upward adjustment in fair value reflects a lower risk-free rate of 11.55%, down from 15.6% at 9M2025, driven by declining yields on restructured domestic bonds. We transitioned from CAPM to a Build-Up approach, averaging 3-year and 5-year bond yields plus a 5.0% risk premium, as observed equity betas lacked statistical robustness. We also refined our relative valuation by narrowing the peer group to a more comparable subset. This enhanced the integrity of our multi-factor linear regression P/B model and improved market-implied alignment. Despite these methodological refinements and the higher fair value estimate, the stock remains overvalued relative to underlying fundamentals. CalBank completed its long-anticipated capital raise in 4Q2025 to restore capital and meet the Bank of Ghana’s CAR deadline. While this was a necessary milestone, the path to a higher valuation remains significantly challenged by structural overhangs as we enumerate below:
We update our rating on CalBank Plc (“CAL”) to “SELL” following an upward revision of our fair value to GHS 0.76 per share, which keeps the valuation below the current market price of GHS 0.94, implying a downside of 19.5%. The upward adjustment in fair value reflects a lower risk-free rate of 11.55%, down from 15.6% at 9M2025, driven by declining yields on restructured domestic bonds. We transitioned from CAPM to a Build-Up approach, averaging 3-year and 5-year bond yields plus a 5.0% risk premium, as observed equity betas lacked statistical robustness. We also refined our relative valuation by narrowing the peer group to a more comparable subset. This enhanced the integrity of our multi-factor linear regression P/B model and improved market-implied alignment. Despite these methodological refinements and the higher fair value estimate, the stock remains overvalued relative to underlying fundamentals. CalBank completed its long-anticipated capital raise in 4Q2025 to restore capital and meet the Bank of Ghana’s CAR deadline. While this was a necessary milestone, the path to a higher valuation remains significantly challenged by structural overhangs as we enumerate below:
- Retained earnings remain negative, dimming near-term prospects for dividend payment
- NPLs are still elevated despite the sharp decline, constraining loan book growth in a low-yield environment
- Loan growth will likely remain muted as capital preservation takes immediate priority
We expect EPS to remain stretched, given the enlarged share base following the 4Q2025 capital raise with dividend distribution highly unlikely over the next two to three years. Management is optimistic that the successful capital raise, improved earnings stability, tighter cost control, and stronger stakeholder engagement positions the bank to deliver a better FY2026 performance. However, we hold a more measured view, particularly on topline momentum. The capital injection stabilizes the balance sheet, but for value creation to resume, earnings capacity and capital buffers must be sufficiently rebuilt, especially considering the current compressed yield curve. At GHS 0.94, the market appears to be pricing recovery ahead of delivery. In essence, we believe the stock is running ahead of fundamentals and we are of the opinion that the stock is overpriced
-
- Structural Reset Achieved, Earnings Stabilising: FY2025 marks a clear reset year. Profit after tax rose 14.0% y/y to GHS 304.9mn, supported by stronger core income, lower funding costs and contained impairments. Cost discipline improved operating efficiency, while margins held up despite rate compression. Capital was fully restored, with CAR rebounding to 19.8% and shareholders’ funds rising to GHS 1.6bn, removing the regulatory overhang and stabilising the balance sheet.
-
- Dilution and No Dividends Delay Per-Share Recovery: Recapitalisation materially strengthened solvency but came with a 3.9x increase in shares outstanding, resetting the earnings base. We expect EPS to remain stretched until absolute earnings expand meaningfully. Negative retained earnings of GHS 804.6mn must also be cleared before dividends resume. We do not expect distributions over the next two to three years, implying that shareholder value recovery will lag capital restoration.
-
- Lower Rate Environment Shifts the Earnings Mix: Treasury bill rates have declined into single digits, removing the high-yield support that previously cushioned earnings. We do not expect aggressive reallocation into government securities at lower yields, and trading gains will likely remain episodic. Sustainable profitability will require a shift toward recurring funded income supported by non-funded revenue. We forecast a gradual rebuild of the loan book and expect NIM to improve modestly to 7.4% in FY2026, supported by funding mix optimisation and a strong CASA base.
-
- Asset Quality Improved, but Growth Will Be Measured: NPLs declined to 17.0% following recoveries and write-offs, with GHS 1.0bn in bad loans cleared during the year. While credit risk has moderated, management remains constrained by the regulatory requirement to reduce NPLs to 10% by end-2026. We therefore expect cautious loan growth of about 15.0% per annum in the medium term. CAL has exited stabilisation with stronger capital, improved profitability and a cleaner loan book. However, sustained earnings expansion will depend on disciplined risk selection and execution rather than balance sheet capacity alone.