• Friday, March 29, 2024
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BusinessDay

Bank stocks at 52-week lows signal opportunities for growth investors

Guaranty Trust Bank

Investment opportunities abound for equity investors on the Nigerian Stock Exchange (NSE), even as the bearish sentiment bedevilling the performance of stocks has failed to spare major lenders.

Three of Nigeria’s five biggest banks as well as two mid-tier lenders slumped to their cheapest price level in more than a year.

Guaranty Trust Bank Plc, Nigeria’s biggest lender by market value, lost 5.36 percent of its value to close at N26.50 last week. This is the bank’s cheapest market price since May 5, 2017, but there are chances it would reach N41.73 over the next 12 months, translating to a total return of at least 25 percent, according to analysts at Lagos-based investment house, Afrinvest Securities Limited.

Nigerian big banks are extending their services into the personal loan space in a quest to improve profitability, grow retail loan books and boost Africa’s largest economy, a move capable of stirring up productive activities in the economy, according to Taiwo Oyedele, an economist at PricewaterhouseCoopers (PwC).

A thriving economy is capable of restoring investor confidence, particularly offshore players who place a high premium on banking stocks thereby creating wealth for growth investors who are forward-looking.

Zenith Bank Plc, Nigeria’s second-largest bank by total assets, fell some 10.66 percent to N16.35 per share, while the parent company of the country’s oldest bank, First Bank of Nigeria Holdings Plc (FBNH), declined 11.61 percent to N4.95 during the week. These prices were the lowest since May 2017.

Similarly, tier-two lender Ecobank Transnational Incorporated Plc was down 9.38 percent to N7.25, while Fidelity Bank Plc plummeted 1.96 percent to N1.50.

Besides Fidelity Bank which Afrinvest’s analysts advised a cautious positioning owing to its unfavourable upside potential, the remaining four stocks considered got BUY ratings and are expected to deliver total minimum returns of 25 percent each over the next 1 year.

According to Afrinvest, Zenith Bank would probably appreciate to N30.52 in the next one year; FBNH, N9.89; Fidelity, N1.76; while Ecobank, N25.17.

In a similar vein, analysts at Meristem Securities Limited rated the stocks BUY in their latest stock recommendation note to clients, albeit a Buy rating at Meristem indicates the stock would most likely deliver at least 10 percent this year at current market price.

Guaranty Trust Bank is expected to hit a target price of N38.55 this year; Zenith Bank, N27.78; FBNH, N8.27; Fidelity, N2.32; while Ecobank, N10.85, the analysts projected.

Since the start of this year, Nigerian banking stocks have lost as much as 22.74 percent of their value, thereby underperforming the broad index which plunged 13.12 percent. Checks by BusinessDay show Guaranty Trust Bank, Zenith Bank and Fidelity Bank were yet to release their half-year financial performance as at Tuesday, August 13.

Meanwhile, Ecobank declared a 15 percent surge in after-tax profit to N59.59 billion with non-interest income taking 53 percent of its gross earnings for the period against 47 percent share it accounted for a year earlier, while Loan-to-deposit ratio (LDR) weakened to 58 percent from 61.6 percent.

FBNH noted it was determined to achieve its asset quality objective after it wrote the entire non-performing loans (NPL) of Atlantic Energy in the first half of 2019, reducing its NPL ratio to 14.5 percent from 25.9 percent recorded in the end-year 2018. FBNH’s LDR stood at 48.7 percent at the end of the period under review.

“Single digit NPL ratio to be achieved through a combination of loan growth, restructuring, recovery and write-off,” the lender said in the 2019 half-year presentation to investors and analysts.

 

OLUWASEGUN OLAKOYENIKAN