For the first time since September 2011, investors are valuing shares of Zenith Bank higher than those of Guaranty Trust Holding Company (GTCO), a development that speaks volumes about how foreign investors now perceive Nigeria and the changing dynamics of the stock market.
GTCO’s share price has nearly halved since hitting a ten-year peak in 2018 and the lender has now ceded ground to Zenith Bank as the country’s most capitalised bank after its share price slipped below that of the latter for the first time since 2011.
While Zenith Bank’s share price has averaged N25.70 this year, the highest since 2012, GTCO’s share price has averaged N25.50, the lowest since 2016, according to data compiled by BusinessDay from the Nigerian Exchange Group (NGX).
Shares of GTCO, once a foreign investor darling, are down due to the exit of foreign investors from the stock market, according to multiple sources familiar with the matter. The bank’s declining profitability and the rise of some other listed companies have also contributed to the waning appetite for GTCO’s shares.
“The exit of foreign investors from the Nigerian stock market in the last three years affected GTCO, given that the bank has been the toast of foreigners,” said Omotola Abimbola, an analyst at Lagos-based investment bank, Chapel Hill Denham.
“GTCO has also seen its Return on Equity (ROE) and profitability decline for the past three quarters now which means the bank no longer commands the premium it once did, but we still consider the stock to be undervalued,” Abimbola said.
“Zenith Bank’s has managed to keep profits up and that is enough for local investors piling into the stock,” Abimbola said.
GTB’s ROE declined to the lowest as of June 2021 at 24.8 percent, the lowest since at least 2016, even though it remains the highest of all top five banks. It compares with Zenith Bank’s 20.6 percent ROE, UBA’s 19.4 percent, Access Bank’s 17 percent, and First Bank’s 8.4 percent.
Zenith Bank also managed to report higher revenue and profit in the first nine months of 2021 when GTCO stalled.
Zenith Bank’s revenues increased by 1.9 percent to N518.673 billion in the first nine months of 2021 from N508.975 billion in the same period of 2020, according to data obtained from the lender’s financial statement. GTCO’s revenue, or interest income as banks call it, however, dipped 18 percent to N178.303 billion from N219.544 billion in the period under review.
Zenith also recorded a 0.8 percent increase in Profit After Tax (PAT) to N160.594 billion in 2021 from N159.315 billion in 2020 while GTCO’s profit fell by 9 percent to N129.4 billion from N142 billion.
Despite the slowdown in GTCO’s revenue and profit, it still has the highest profit margin in the industry.
GTCO, formerly Guaranty Trust Bank before its transition to a holding company in 2021, was one of the first Nigerian companies that foreign investors bought when they came to Nigeria. The bank’s transparency, corporate governance standards and exceptional return on investment have been the attraction.
The problem is that GTCO is also one of the companies that feel the heat when foreign investors leave the market as was the case in 2016 when GTCO’s share price fell to an average of N21 from N23 the previous year, before rebounding to N34 in 2017 following the massive influx of investors who staked N1.2 trillion in stocks after a gloomy 2016 when they only invested less than half of that amount at N518 billion.
Foreign investors stake in Nigeria stocks fall to lowest since 2007
In 2021, foreign investors deserted Nigeria at break-neck speed and that impacted GTCO.
Foreign participation in the market amounted to a mere N399 billion between January to November, the lowest of any 11-month period since 2007.
Nigeria’s foreign exchange shortage which has resulted in several investors being trapped in the country has blocked new foreign inflows and left existing investors seeking ways out.
“For those that have been lucky enough to get dollars from the CBN, we have sold down our equity holdings in the country,” a South African fund manager, who was exposed to GTCO told BusinessDay.
“Until there’s more clarity about the FX situation, I don’t see a way back into Nigeria,” the fund manager said.
Nigeria’s main sources of foreign exchange have tanked. Oil export receipts, which used to account for the largest source of FX, is yet to attain the heights achieved in 2013.
Foreign investment, another major source of FX inflow, is also now a shadow of its former self, crashing by more than 300 percent since 2014 while diaspora remittances have also cooled- declining by 28 percent in 2020 according to IMF data.
The COVID-19 pandemic has not helped but the lack of reforms that will engender transparency and restore credibility to the FX market, has been telling. Although there are signs that improvements happened in 2021 as the country put the worst of the pandemic behind it, there are still going to be problems sourcing foreign exchange in 2022, according to Muda Yusuf, former director-general of the trade advocacy group, Lagos Chamber of Commerce and Industry (LCCI).
“There are no indications of any significant shift in monetary and foreign exchange policy stance in the near term, so the liquidity crisis in the foreign exchange market may continue,” Yusuf, who is now CEO of the Centre for the Promotion of Private Enterprise, said.
Some banks from Standard Chartered to Renaissance Capital are all tipping a devaluation of the naira this year on the back of Nigeria’s constrained oil income (due to low production) and rising global interest rates.
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The foreign exchange uncertainty leaves GTCO and other favourites of foreign investors with a bleak outlook. The banking industry as a whole is also faced with a plethora of challenges that has dampened the outlook of most investment houses.
Some investment bankers interviewed by BusinessDay said local investors are also avoiding foreign investors’ favoured stocks due to the fear that they may fall further as a rebound is tied to the return of the investors.
“However, when they do return, perhaps after the elections, the prices of these stocks are likely to go up, so maybe it is still a good time right now to buy them on the cheap,” a top investment banker told BusinessDay.
NGX newbies attract investors
Another reason why foreign investors are rotating out of GTCO is the listing of new companies that are demonstrating growth in a tough and challenging environment that is stifling the banks.
“GTCO and Nestle are the first names investors buy coming into Nigeria and they are the last names investors sell when they are throwing in the towel on Nigeria,” said Akinbamidele Akintola, a former analyst at Stanbic IBTC Stockbrokers who now works as Chief Commercial Officer at a technology company.
“To me, while the current trends suggest that whilst investors might have thrown in the towel on Nigeria, and still awaiting ways of getting their FX out of the country, they have decided to exit GTCO and switched into other names that are demonstrating growth in a tough and challenging environment,”.
The likes of MTN Nigeria and Airtel Africa are some of the new entrants into the stock market and are attracting significant investor appetite. Both companies are in a sector that has been growing in real terms despite the difficulties faced by the economy. MTN for instance did a public offer last year that was three times oversubscribed by institutional investors.
A subsequent sale to retail investors was also oversubscribed, according to people familiar with the matter with the telco now considering to sell an additional 15 percent to meet bulging demand.
MTN offered 575 million shares to the public at N169 per unit.
“The narrative is changing,” said Tajudeen Ibrahim, head of investment research at Chapel Hill Denham. “Foreign investors are also now looking at the telcos that were not there some 4 -5 years ago when banking stocks dominated,” Ibrahim said. The telecommunication sector does have potential. The sector has consistently grown in double-digits since 2016 and was partly responsible for the country’s exit from recession in 2017 and 2021.
On top of that, the dominant players, MTN and Airtel have only just obtained licenses- though approvals-in-principle- to operate Payment Service Bank units which is expected to add to their already robust earnings and profitability.
