Abbey Mortgage Bank Plc has solidified its position as the best-performing mortgage stock on the Nigerian Exchange (NGX), delivering a 20% year-to-date (YtD) gain as of March 20, 2025.
This builds on an impressive 35% return in 2024, pushing the bank’s five-year rally to 291%, with its stock price surging from N0.92 in 2019 to N3.60.
With a 1.11% dividend yield (N0.04 per share), Abbey’s total return now stands at 21.11% YtD, reinforcing investor confidence in the mortgage bank’s financial performance.
Abbey’s Financial Performance: A Shift Towards Investments?
Abbey’s latest financial results reveal a 58% jump in gross earnings to N12.4 billion, primarily fueled by a 65% surge in interest income, reaching N11.91 billion. However, a closer analysis of Abbey’s earnings structure raises questions about its mortgage lending focus:
Only 22% (N2.57 billion) of its interest income was derived from loans and advances, while a staggering 78% (N9.33 billion) came from short-term funds and investment securities.
Mortgage lending shrank significantly, dropping from N12.59 billion in 2023 to N8.53 billion in 2024, reflecting a 15% decline in total loans and advances.
Meanwhile, Abbey’s financial assets soared, with bank deposits nearly doubling (+96% YoY) to N24.92 billion, while investments in securities at amortized cost rose sharply to N41.75 billion from N26.78 billion.
This pivot to financial investments has been lucrative, but it also comes with increased costs, as interest expenses skyrocketed by 201% to N6.09 billion, compressing Abbey’s profit margin to 9.87%, down 11.42% from the previous year.
Mortgage Lender or Investment-Focused Bank?
Abbey’s evolving income structure suggests a strategic shift from traditional mortgage banking towards a more investment-heavy financial model. The bank justifies this pivot as a response to high default rates among developers and mortgage customers.
With its Approval-in-Principle (AIP) for a commercial banking license, Abbey is restructuring its balance sheet ahead of a potential transition into a broader financial institution. Increasing its holdings in financial securities also enhances liquidity, positioning the bank to re-enter the mortgage space when market conditions improve.
Investor Takeaways: Is Abbey’s Growth Sustainable?
Abbey’s valuation metrics reflect its strong performance, but also suggest a premium price for investors:
Price-to-Earnings (P/E) ratio of 30x and Price-to-Book (P/B) ratio of 3.89 indicate that the stock is relatively expensive.
However, with earnings per share (EPS) growth of 33% and a PEG ratio of 0.90, the stock still offers reasonable value.
Abbey’s low beta of 0.66 suggests that it remains a stable investment despite its evolving financial structure.
What’s Next for Abbey Mortgage Bank?
As Abbey Mortgage Bank continues its impressive stock market rally, investors and stakeholders will closely watch whether the bank maintains its mortgage lending identity or fully transitions into an investment-driven financial institution. While its strategic shift has driven profitability, its ability to sustain long-term growth will depend on balancing liquidity preservation with core mortgage lending activities.
