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Big banks in equity market slump

By OKEY ONYENWEAKU

Investors are seeking bumper harvests by year end as they begin to cherry pick low priced banking sector stocks. Price earnings ratio (P/E) for banks has continued to dip over the last two quarters as foreign portfolio investor bailout on the market in expectation of potential challenges of politics in 2019. This bucks the argument of a number of local analysts who insist that the market is destined to pull back up as investors ‘bottom feed’ on cheap equities. The economy rose by 1.95 per cent in the first quarter from -0.91 per cent in the first quarter of 2017, indicating a push of 2.87 per centage points. Nevertheless, analysts note that the growth of the economy remains fragile.

Several stocks have retraced their steps as they dock for lower prices. Though analysts have fingered the exit of foreign investors from the stock market as responsible for markets bearishness, some of the slowing down of trades is a function of slower economic growth. Indeed, the market which reached a peak of 43,609.77 basis point on March 6, 2018 has since plunged to 37,733.44 points Year- to- date on June 28, 2018. This has left the market with a negative return of -0.73 per cent Year -To -Date. Of course, the wobbly capital market has rubbed off on other major sectors of the market.

Banking stocks are in fact not an exception. They have also assumed similar downward trend. Most of them appear to be trading far below their book value. Whereas stock prices of some listed companies on the bourse appear not to have lost much weight, discerning investors are creatively taking positions now, taking advantage of the low P/E ratio of the banking stocks especially. For instance, the average P/E ratio for these banks as at June 28, 2018 attractively stood at 8.17.

Discerning financial analysts are prodding investors not to let the opportunity presented by low P/E ratios of banking stocks to slip by.

Experts explain that the price to earnings ratio (PE Ratio) is the measure of the share price relative to the annual net income earned by the firm per share. According to them PE ratio shows current investor demand for a company share. They observed thata high PE ratio generally indicates increased demand because investors anticipate earnings growth in the future.

The average market P/E ratio is 20-25 times earnings. But the average P/E ratio of the banking stocks are far below 20-25 to about 8.

In their further analysis they also reckon that Companies that are losing money do not have a P/E ratio.

‘’If a company has a high P/E, investors are paying a higher price for the stock compared to its earnings. … If a company has a lower P/E, you get more earnings for your investment. This makes a low-P/E stock a good value, but it can also simply indicate that investors aren’t very confident about the company’s prospects’’, reckons Investopedia

Business Hallmark research reveals that at p/e ratio of 5.10, Access Bank is a good buy for any discerning investor. For Zenith Bank, its p/e ratio stood at 4.18, FBNH ;4.81, Ecobank;6.63, G T Bank; 6.61, UBA; 4.64, Sterling Bank;4.25, Union Bank;8.85, FCMB Group; 4.37,Stanbic IBTC ;9.48, Fidelity Bank;1.80 and Wema Bank with p/e ratio of 12.25.

Despite the low stock prices of the banks, most of them have gained reasonably this year. For instance, Access Bank Plc has gained 23.45 per cent, UBA ; 86 percent, Zenith Bank:35 per cent, Fidelity has advanced 99 per cent Year To Date. Similarly, Sterling Bank, Union Bank and Stanbic IBTC have all gained 42 percent, 21 per cent and 67 per cent in that order.

Ecobank Transnational incorporated has also appreciated by 50 per cent , Investors in G TBank have gained 25 per cent.

Given the low prices, analysts have advised investors to sow their seed of investment now and expect returns in the future.

‘’This is the best time to take position in the market. We are in the buyers -market now and investors must not miss the golden opportunity’’, advised Managing Director of HighCAP Securities limited, Mr. David Adonri, a Lagos based stock broker.

 

Zenith Bank Plc

Performance of the big banks

ZENITH BANK

Zenith Bank, the country’s biggest bank in terms of assets, had 25.5 per cent year-on-year appreciation in its PAT to N47.08 billion, but this was below the 41.1 per cent profitability growth posted in Q1 2017.

Zenith Bank grew its gross revenue 15 per cent N169.19 billion in Q1 2018 as interest income up picked 21 per cent. But the growth in the bank’s earnings was way below 48.6 per cent rise recorded in March 2017, due to contraction in non-interest income, which fell -10 per cent in Q1 2018 instead of the 94 per cent rise posted last year on the back of -26 per cent decline in income from financial guarantee contracts issued and massive -71 per cent drop in corporate finance fees. Foreign exchange trading income, which was down whopping -86 per cent also, had adverse impact the growth of Zenith Bank revenue in the first three months of 2018.

The challenge of rising NPL, forced Zenith Bank to scale down its loans and advances -10 per cent to N2.03 trillion from N2.25 trillion in Q1 2017. And subsequently, its impairment for loan loss dropped significantly by -42 per cent to N4.57 billion in March 2018. Deposits from customers also followed the same trajectory, dropping -1.2 per cent to N3.4 trillion compared to N3.44 trillion in the preceding year. Meanwhile, significant 237 per cent leap in derivative assets and 95 per cent rise in dues from other banks managed to mitigate to the drop in the bank’s risk asset as total assets were up marginally 1.2 per cent to N5.68 trillion.

UBA Plc

UBA

UBA’s profit after tax rose 6 per cent to N23.74 billion as at this March this year, compared to 32 per cent profit-after-tax growth it had in the first three months of 2017.

The PAN African bank improved its gross earnings 18 per cent to N119.37 billion in Q1 2018 underpinned on 79 per cent rise in cash and bank balances, which helped pushed interest income up 18 per cent to N90.33 billion.  And 859 per cent increase in other operating income and fee and commission income, which was up 15 per cent, lifted non-interest earnings 14 per cent to N24 billion, in spite of -13 per cent drop in net trading and foreign exchange due to improved dollar liquidity in the Nigerian economy.

Although the lender was able to prune down its impairment charges on loan loss by 53 per cent to N1.45 billion instead of N3.1 billion in Q1 2017, its income expenses almost doubled, rising 46 per cent to N36.78 billion as a result of cost deposits from customers and borrowings, which climbed 55 per cent and 87 per cent respectively in the first three months of this year. Credit-related fees and commissions cost which was up 48 per cent and money spent to rake in trade transactions income, which increased 46 per cent also caused fee and commission expenses to rise 21 per cent to N20.03 billion.

FBN Holdings Plc

FBN Holdings Plc. (“FBNH” or “FBNHoldings” or the “Group”) achieved for the three months ended 31 March 2018, Gross earnings of N138.9 billion, which dropped by 1.6% from N141.0 billion in 2017.

Net-interest income also dipped by 5.7 per cent to N75.7 billion from N80.3 billion in 2017 while the banks Non-interest income rose by 2.5 per cent to N24.8 billion from N24.2 billion in 2017.

Also, the operating income also dropped by 3.8 per cent to N100.5 billion to N104.5 billion in 2017.

At the close of business in March 31, 2018 the banks impairment charge for credit losses also declined by 12.1 per cent to N25.3 billion from N28.8 billion in 2017.

While operating expenses of N56.4 billion rose by 1.2% from N55.7 billion in 2017, Profit before tax stood also slipped to N18.8 billion from N20.0 billion.

Similarly, Profit after tax went by 8.6 per cent to N14.8 billion from N16.1billion during the review period.

Access Bank Plc

Access Bank first quarter (Q1) ended March 31, 2018 showed an increase of 19 percent in gross earnings to N137.5 billion from N116 billion in the corresponding period of March 2017, with interest income and non-interest income contributing 70 percent and 30 percent respectively.

The Bank posted a Profit before Tax (PBT) of N27.4 billion while Profit after Tax stood at N22.1 billion from N22.4 billion in Q1 2017. Access Bank’s Balance Sheet remained strong with a 7 percent growth in Total Assets as the Bank closed the quarter ended March 2018 with Total Assets of ₦4.38 trillion from ₦4.10 trillion in December 2017. The Group‘s Capital and Liquidity Ratios (CAR) of 19.3 percent and 41.3 percent respectively, remained in excess of the minimum regulatory requirement and would support the business adequately.

Fidelity Bank Plc

Fidelity Bank Plc profit before tax for the first quarter (Q1) ended March8 31, 2017 increased 2.7 percent to N4.98 billion from N4.84 billion posted a year ago.

Post-tax profit of the Bank rose 7.2 percent to N4.62 billion from N4.31 billion reported the same period of 2017.

Gross earnings of Fidelity Bank surged from N40.84 billion in the Q1 period of 2017 to N43.68 billion declared the review period of 2018; indicating a rise of 6.9 percent.

Analysts believe that the general weakness of the economy in Nigeria is not favourable to any sector. Especially the banking sector which has suffered serious setback ranging from the implementation of the Treasury Single Account, which removed a huge chunk of public sector money from the financial system, High Non-performing loans, harsh macro-economic environment and stiffer regulation by the CBN. Also, apart from the apprehension in the market, foreign investors have also pulled out a substantial part of their funds from the market for fear of deeper losses. Many observers think there is huge uncertainty in the air given the coming 2019 election. Whereas the Nigerian currency ‘the Naira’ is weakening against other currencies of the globe, Broad street analysts blame the crunch in the economy as the major challenge in the market. The recent raising of rates by the United States of America (USA) Federal Reserve to 1.75 per cent could prompt more Portfolio Investors to leave Nigeria and for others to channel their investments off shore for better, higher and risk free returns.

The development may have put pressure on the market which has further been weakened by investor apathy and lack of confidence. Managing Director of Crane Securities & Investment limited, Mr. Mike Ezeh, reckons that low demand for stocks generally, induced by lack of money is also affecting banks Marketing shares. He explained that with limited funds investors would prefer to invest in other segment of the economy with higher returns.

David Adonri of Lambeth Trust & Investment Limited believes that though the banking sector was still one of the best sectors to deploy idle resources, the general economic outlook calls for caution.

 

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