Cost pressures crimp builders’ growth

Firms operating in the mortgage and housing industry have underperformed as cost pressures continue to crimp bottomline and put a dent to growth prospects.

Our discussion centres on four major quoted firms in the mortgage industry. These firms are – Aso Savings and Loans plc, Resort Savings and Loans plc, Abbey Building Society plc and Union Homes Savings and Loans plc, all quoted on the exchange.

Of the four firms, only Aso Savings was able to record not just an increase in profit but profitability as the rest recorded losses. The loss position was fuelled by surging operating expenses that swallowed profits.

For instance, Abbey Building’s cost to income ratio, a measure of efficiency, was as high as 146.27 percent, which explains its loss position. Similarly, Resort Savings cost to income ratio of 185.63 was also on a high side.

Only Aso Savings was able to deploy the resources of owners in generating profit as it recorded a return on equity and assets of 0.2 percent and 3.9 percent, though there are room for improvement.

We advise management of these firms with dwindling bottomline to install proper cost cutting measure in order to boost profit that will enable them give high return on investment to owners in the form of dividends.

Based on the 2013 audited financial statement of the aforementioned firms, our top pick is Aso Savings and Loans, as the mortgage firm was able to give reasonable returns on shareholders’ investment despite challenging environment.

Nigeria’s huge housing deficit of about 17 million, its rising population and burgeoning middle-class portend opportunities for mortgage and real estate firms to tap into.

Patrick Atuanya and Bala Augie