Penny Bank stocks ride on market sentiments 

…Skye, Diamond, Wema, FCMB, Sterling grow over 60% YTD

FELIX OLOYEDE

Penny stocks in the financial sector of the Nigerian Stock market have been immense beneficiaries of the rallies the bourse is enjoying as they have become investors’ toast.

Skye bank, Diamond bank, Wema bank, FCMB and Sterling bank, which opened the year below N2, have recorded significant appreciation, outperforming the market 14.46 per cent growth.

Even though Skye bank has not released its financial results in two years after it was embroiled in capital adequacy controversies that led to the sack of its board and management team by the Central Bank in July 2016, its stock has witnessed the highest growth, rising 156 per cent year-to-date (YTD) from the nominal value of 50 kobo to N1.28 on Friday.

Investors are riding on the bullish trend in the capital market to take advantage of the fact these banks’ stocks are undervalued, having been hit by economic crunch in 2016, said Mr. Andrew Esene, research analyst, Futureview Financial Services Ltd.

“With the improved macroeconomic outlook and oil price going up, investors felt there are good prospect for these banks, because their non-performing loans are beginning to perform. So, in 2018 when investors were restructuring their portfolios, they felt these stocks whose prices were down would go up.”

He explained that it was just investors’ speculations that were behind the rise of Skye bank’s stock, adding that it is not what he would advise investors to go for.

“The rise of these penny bank stocks is driven purely by market sentiment. A lot of people are just looking for stocks they believe will give them good returns. There are no financial fundamentals behind those buying,” stressed Johnson Chukwu, managing director, Cowry Asset Management Company Ltd in a telephone interview with Business Hallmark.

He maintained that at some points, market sentiment would settle and the market will stabilize and there would be some corrections.

Wema Bank has also profited from the current positive market sentiments as its stock which was 50kobo on January 2, when the market opened for business this year, has risen 128 per cent  YTD and  appreciated 4.59 per cent to close N1.14 on Friday.  It was the fifth most traded stock on Friday with 46.5 million of its shares worth N48.7 million sold.

“We believe it is part of the larger market trend as numbers of stocks are rising people are also looking at Wema Bank. And people are looking at the stock as an undervalued stock,” said Tunde Mabawonku, chief financial officer, Wema Bank told Business Hallmark through telephone in Lagos.

Wema Bank shares have recorded 107.27 per cent year-on-year return and price-earning (P/E) Ratio of 15.42 per cent and Earnings per share (EPS) of N0.07. The lender which carried out capital reconstruction last year has not paid dividend in over a decade.

Also Diamond bank, FCMB and Sterling bank have leveraged on the market bullish bandwagon effect, helping their stocks to climb 68.15 per cent, 84.81 per cent and 69.03 per cent YTD respectively.

Diamond bank weathered through liquidity turbulence between 2016 and 2017 due to the economic challenged that hit the country, forcing it to divest from its West African operation, selling its Benin, Togo, Cote d‘Ivoire and Senegal subsidiaries to a Cote d‘Ivoire-based Manzi Finances S.A for €61 million. But things are looking up for the lender again as Nigerian economy took a positive turn in the second quarter of 2017 on the back of rising oil price which hit $71 last week.

The bank, which posted a N6.67 billion pre-tax profit in September with a prospect of a good year end result, has delivered 156.31 per cent return in the last one year.  Its share was N1.57 on January 2, but despite dropping -0.38 percent to N2.64 on Friday has appreciated 68.15 per cent YTD. It was the second most active stock on Friday with 126.78 million shares valued at N323.4 million traded.

Even FCMB which is yet to release its nine month result for 2017 also has also caught investors’ fancy, its stock has moved 84.81 per cent YTD from N1.58 in the first trading of the year to N2.92 on Friday. It led the activity chart on Friday with 133.85 million shares sold for N375.05 million.

This is also a good time for Sterling bank’s shareholders as the value of their investment in the bank has grown 69.03 per cent in this year with its stock rising from N1.13 on January 2 to N1.91 last week. The lender which recently announced the appointment of a new managing director appreciated 3.24 per cent on Friday and has posted a 154 per cent return in the last one year.

FBN Holdings is the only commercial lender whose stock valued above N8 that has risen above 50 per cent this year as investors believed it is significantly undervalued, having P/E Ratio of 22.19 per cent and EPS standing at N0.61.

The Nigerian capital market was up 0.56 per cent on Friday with the All Share Index berthing at

43,723.30 point, highest since August 2008. The bourse finished 2017 at the 11th best performed market in the world and has grown 14.46 per cent YTD.