Market slump: Banks’ Stock performance send mixed signals to investors

By OKEY ONYENWEAKU

The bear run in the market has been for such a long period that investors may not readily remember the last time the market was bullish. The slump in both the All share Index and market capitalisation have ben so extensive and sustained that any hope and expectation of a strong rally has completely disappeared. Most investors have been bruised and battered.

However, while the market is taking a beating some stocks seem to portray a different picture as they continue to post some good results. This is evident in the banking sector where most of the stocks are generally doing well on the performance, yet return to shareholders have been less than impressive except for just a few. This is sending certain mixed signals to the investing public  about the state of the economy and the banking sector.

Although the banks are posting impressive results year on year, the returns have not been sterling and investors are shying aweay from them. This has rendered their stocks less attractive to investors who once relied on the sector for good returns in terms of dividends, bonuses and capital appreciation. Many investors see this development as a ironic as a good result by any company is stimulus for capital appreciation – price increase. But this is not happening.

Investing in bank stocks has not really returned significant returns. Stakeholders have become more nervous and are looking for where to run, especially in an era where the likes of Skye Bank has gone with its shareholders funds. At press time last Thursday, the highest bank stock was N47.00 per share which is Stanbic IBTC, now higher than GT Bank that closed on Wednesday at N34.20 per share. Some bigger banks have also posted  unimpressive performance in the first quarter of 2019.

While the market remains in the negative at -4.53 per cent year to date and year on year negative at -23.67 per cent, the banking sector has only gained a paltry 0.39 per cent year to Date while losing 18.3 per cent since January 2, 2018.

Many industry observers have heaped the poor returns of banking stocks on the weak economy and the inability of the present government to galvanise the difficult macro-economic  environment in the interest of businesses  and financial industry.

Banks stocks

Banking stocks have followed the market closely in the last one-year with market-related Beta values rising strongly, meaning a one per cent rise in market value resulting in a more than proportionate rise in the value of banking sector stocks. However, in recent months some banking stocks have recorded higher declines than the market itself (strong negative Beta’s). The market index has slipped by a negative figure of -4.53 per cent year to date.

In comparison Access Bank stock has gained 13.8 per cent in the last four months, specifically from N6.15 per share in January 3, 2019 to N7.00 in April 24, 2019. Investors in GT Bank seen as the jewel of the banks have also gained 3.99 per cent from N32.95 to N34.20 per share. Union Bank shares advanced 12.3 per cent from N 6.05 to N6.80 a share.

Sterling Bank has gained the highest Year to Date by 27.4 per cent in the review period from from N1.96 per share to N2.70 per share. While Wema Bank share moved up by 18 per cent from N0.61 to N0.72 per share, FCMB group has also gained 12.12 per cent from N1.65 to N1.82 per share. Stanbic IBTC has over taken GT Bank as the highest valued stock at N46.20 per share, gaining 0.43 per cent from N46.00 per share

The banks which failed to record any capital appreciation include FBN Holdings and Polaris Bank (Skye Bank) which closed at N7.80 and 0.77 pershare respectively.   In fact, about five banks proved to be laggards as they closed in the red. Such banks include ETI  which declined by -23.2 percent from N14.00 earlier to N10.75 per share.

Fidelity shed -1.5 per cent in the same period, Unity Bank has dropped -19.1 per cent from N0.99 to N0.82 per share, UBA shares fell by 1.31 percent from N7.80  to N7.00, Jaiz Bank dropped -4 per cent from N0.50 to N0.48 per share, Zenith Bank  stock fell by -5.94 per cent. In fact, jittery investors are looking for signs of hope.

Banks first quarter results

At the close of business in the first quarter 2019, Zenith Bank’s Gross earnings dipped 6.9 per cent  from N169 billion in 2018 to N158 billion in 2019. Its Profit before tax, however, rose 5.9 per cent from N54 billion in 2018 to N57.2 billion in 2019.

The bank which just changed its helmsman posted a Profit after tax of N50.2 billion, representing year on year increase of 6.8 per cent  from N47 billion in 2018.

GTBank’s Gross earnings of N110.3 billion in the first quarter 2019, represents 1.2 per cent growth from N109 billion posted in March 2018. Its Profit before tax increased from N52.6 billion in 2018 to N56.9 billion in 2019. This amounts to a 8.1% year on year increase. While its Profit after tax rose 9.5 per cent  from N44.6 billion in 2018 to N49.3 billion in 2019, Earnings per share increased by 10.1 per cent from N1.58 in 2018 to N1.74 in 2019.

In the same vein UBA’s Net interest income increased from N53.5 billion in 2018 to N58 billion in 2019. As  its Profit before tax increased by 13.5 per cent year on year from N26.5 billion in 208 to N30.1 billion in 2019, Profit after tax increased by 20 per cent in the comparative period from N23.7 billion in 2018 to N28.6 billion in 2019. At the close of business in March 2019, the Pan African Banks Earnings per share increased 22.3 per cent from N0.67 in 2018 to N0.82 in 2019.

Access Bank which has just concluded a merger with Diamond Bank recorded Gross earnings increase from N137 billion in 2018 to N160 billion in 2019. This amounts to a 16% increase year on year.

Similarly, Profit before tax increased by 66 per cent from N27.2 billion in 2018 to N45.1 billion in 2019. The bank’s Profit after tax jumped 88 per cent year on year from N21.9 billion in 2018 to N41.1 billion in 2019. At the close of business in the first 2019, Earnings per share also rose 81 per cent from N0.77 in 2018 to N1.39 in 2019.

Industry analysts have fingered weak economy and the challenges of macro-economic environment as constituting a lot of hiccups for strong growth in the financial institutions. However, some of them believe that the recent reduction in MPR from 14 per cent to 13.5 may usher in a good season for the banks in the long term.

A Lagos based analyst who manages Highcap Securities limited, Mr. David Adonri, said the macro-economic environment has not favoured the banks despite the gradual economic recovery. He explained the banking sector has had a hit because of the Skye Bank challenge and the suspicion that one or two other banks may also be weak.

Highcap securities boss added that economic stability may not be long in coming given recent right policies.

”All things being equal, the economy will stabilize and the market will start reacting appropriately again”, he said.

Dr. Afolabi Olwokere of Financial Derivatives Company limited, said investors have become cautious in taking position in banks’ stocks since the volatility in that sector increased.

”Investors are careful with banking stocks now” , he said.

Looking down the line, economists do not expect any magic from a country with a mono-economy and which is yet to cultivate other sectors enough to grow her economy.

With a dismal growth of 1.9 per cent in 2018, the Nigerian economy lost out on meeting the set target of about 3 per cent growth. In a mono-economy that is substantially dependent on the vagaries of the price of crude oil for revenues, not much has been put in place to galvanise productivity in other sectors for significant growth.

Sadly, this is even when the country’s population growth rate is put at above 3 per cent annually alongside a corresponding unemployment rate of 23 per cent. These continue then to defy the Economic Recovery and Growth Plan (ERGP) which industry analysts also doubt is not even being implemented even as it betrays no clear vision.

Both international and domestic investors have also complained about multiple exchange rates and multiple taxation and even higher taxation on tobacco and alcohol that have bruised firms in that sector among others.

Whereas the government under President Buhari believes it has delivered on its three major promises, namely security, tackling corruption and growing the economy, analysts are quick to point out that there are still mounting incidents of escalating acts of aggression by the Islamist sect, Boko Haram, alongside the menace of the Fulani herdsmen which has barely been tamed.

In addition, they observed, the economy still lacks the deserved propulsion to grow evenly while the anti- corruption war is just a surface move. There strong discomfort that significant growth can be achieved by the banks in an economy that is barely growing.