THE value of Bank South Pacific (BSP) shares has plunged more than 50% due to volatility on the stock market, the National Superannuation Fund (Nasfund) reported.
BSP shares are currently trading at around K0.70.
BSP has faced extraordinary share price growth over the last six years, rising to a high of K1.50 per share last year, retracing to K0.98 at the end of last year, Nasfund noted.
Nasfund, like most institutions in Papua New Guinea, has large exposures to BSP and has 7.10% of BSP’s share capital.
To ensre that members funds remain protected and that BSP is performing to the shareholders’ expectations at all times, Nasfund will continue to monitor that exposure.
Nasfund’s joint chief executive officer, Rod Mitchell, in the November newsletter, said: “The question remains as to what the ‘fair value’ of BSP Ltd is for analysts and fund managers.”
While “fair value” is never an exact science, on a price earning (P/E) ratio basis, the stock appears to be fairly priced at K0.70 a share.
The bank’s dividend policy has been to pay out only 50% of its income, retaining the remaining income for expansion.
The yield is not attractive to small investors who relied on capital gains, Mr Mitchell said.
The current fair value was also impacted by what was now “too much” capital, he said.
“This is because BSP has idle capital not producing income for shareholders, yet there is a cost to this capital on balance sheet,” Mr Mitchell said, noting that BSP has almost twice the Central Bank requirement for its capital.
“Without using these to produce more income for itself and growth for PNG, BSP will keep the fair value down based on the underutilised capital, Mr Mitchell stressed.
While some investors have been looking to a K1 trading level, it looks like the trading range will move between K0.70 and K0.85.
Nasfund sees the potential for a K1 per share within two years, as the overhang dissipates and earnings growth along with forward earnings increase sufficiently to justify a K1 share price.