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Published On: Wed, Dec 20th, 2017

Five bank stocks strike gold

.           FBNH, GTB, UBA, ZENITH and ACCESS lead rally


Five of Nigeria’s largest banking sector institutions have pushed against a sober economic outlook in 2017 to grow their nominal stock market returns by over 100 per cent in the course of the year, making Nigeria’s stock market one of the world’s highest yielding investment havens with a year to date yield of 43.02 per cent as against South Africa’s Johannesburg Exchanges (JSE) yield of 13.3 per cent and the Hong Kong Hang Seng’s year to date yield of 31.1 per cent.

Nigeria’s top banking sector stocks that nudged the depressed market forward were GTBank, FBN Holdings, Zenith Bank, UBA and Access Bank which posted average year to date yields(YTD) of over100 per cent. Meaning that investor portfolios stacked with a large number of bank stocks were likely to have outperformed the Nigerian All Shares Index (ASI) which posted an equally impressive bur relatively lower year to date return of slightly over 40 per cent.

FBN whose stock closed N8.74 on Friday, saw the highest rise in banking sector stocks, appreciating 145.71 per cent YTD. Its stock is, however, believed to be overvalued with 14.65 Price-Earnings (P/E) ratio and Earnings Per Share (EPS)at N0.61 per cent, due to the current rally in the market.

Nigeria’s oldest commercial lender has been making frantic efforts to curtail its high Non-Performing Loans (NPLs), which has been having adverse impact on its bottom-line for some while.  The bank’s NPL ratio stood at 21 per cent in September, which was in line with its 20 per cent full-year 2017 projection and there are optimisms that it would further improved, following the rebounding of the Nigerian economy and especially the oil sector where a large chunk of its toxic loan emanate from.

“First Bank is interesting, because its profit performance is not commensurate with its balance sheet size, because of the loan loss provisions it is making. If you look at its top line, it is making reasonable level of revenue, but the bottom line is affected by operating cost, which it is managing now along with its loan loss provisions,” said, Johnson Chukwu, Managing Director, Cowry Assets Management Company Limited. He added that if it is able to successfully tackle its NPL challenge, it would begin to post better returns.

The return of foreign portfolio investors, who focus mainly on tiers 1 banks seem to have spurred the witnessed price appreciation, explains Andrew Esene, analyst with Futureview Financial Services in a telephone conversation.  “When they come they only focus on tier 1banks. They focus on high quality stocks and companies with good governance and dividend history and high liquidity so that they can barge out whenever the need arises,” he added. He noted that the challenge this poses is that these stocks are have potentially high volatility as they quickly begin to squirm at the expressed sentiments of foreign portfolio traders.

UBA’sshares have also witnessed significant appreciation, growing 126.52 per cent YTD and it lost –N1.18 to close N10.08 on Friday. But the stock with a P/E ratio of 4.42 and EPS of N2.28 is undervalued. The bank has successfully kept it NPL ratio at 4.2 per cent in Q3 2017, below the 5 per cent regulatory threshold despite industry average ballooning to over 13 per cent.

And Access Bank stock which closed at N10.40 on Friday, -3.08 per cent lower than it traded the previous day, has also outperformed the bourse. The value of its stock soared 79 per cent this year. Access Bank recently announced that part of its five-year plan was to be the number one commercial lender in the country by 2022. Its shares still have a lot of growth potential with a P/E ratio of 4.21 and EPS N2.74. The commercial lender boasts of one of the lowest NPL ratio’s in the industry, standing at 2.51 per cent as at the end of September.

Zenith Bank closed last week on a high, rising 2.84 per cent to end Friday’s trading at N25.70. The banks stocks have made major progress this year, appreciating 78.47 per cent YTD with an impressive EPS of N5.06 making one of banks with the highest EPS this year. Zenith Banks equities which have grown by 104.47 per cent in past one year, has a P/E ratio of 5.08, giving it more room to appreciate going further. The bank has the largest assets of N5.13 trillion in Nigerian financial industry.

Nigeria’s most capitalized bank, GTBank has also recorded a capital appreciation of 70.05 per cent YTD. Although it lost -0.5 per cent on Friday to close at N39.80, it claimed to N43 last Tuesday, which highest it has reached in over a decade. The bank’s stock currently reflects true value with a P/E ratio of 8.28 and EPS of N4.81. GTBank has been able to sustain its NPL ratio below the 5 per cent benchmark, staying at 3.93 per cent at the end of Q3 2017.

The Cowry Assets Management Company boss clarified that foreign portfolio investors and the local counterparts are often attracted to GTBank because of its policy of paying half year dividend annually.

The NSE dripped red ink in 2016, declining 26.37 per cent with revenue dipping33 per cent to N4.46 billion. The 43. 02per cent YTD growth recorded by the end of the second of December gives some cheery news to the Exchange’s management, which has commenced the process of demutualization of the company, in other words creating shares that make the NSE itself a company with tradeable shares.









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