Rating Summary:
We update our rating on SOGEGH to “SELL” despite an upward revision of our fair value to GHS 7.96 per share, which keeps the valuation below the current market price of GHS 11.4, implying a downside of 30.2%. 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, narrowing the peer group to enhance the integrity of our multi-factor P/B model. Despite these methodological improvements, the stock remains fundamentally overvalued, particularly following a disappointing FY2025 performance. While SOGEGH remains a sound franchise, supported by strong capital buffers, improving asset quality, and a resilient funding base, we believe the current market price aggressively front-runs the projected recovery. The bank’s earnings trajectory does not justify this premium, given lingering uncertainty regarding cost normalisation, yield compression, and non-interest income volatility. While we view SOGEGH as a stable long-term income play, the near-term risk-reward balance appears unfavourable and suggests a downside risk to the current share price. We expect a correction and advise awaiting a more compelling entry point as the earnings recovery becomes more firmly established.
