The NGX has more stocks with negative price-to-earnings ratios, suggestive of the losses many listed companies have incurred over the past few months. However, some stocks have also displayed immense potential due to the profits posted by the companies.
As expected, most of these companies have been in the financial sector. Irrespective of returns posted by these stocks, there is little or no buzz around them. In this analysis by BusinessDay, stocks which are adjudged some of NGX’s most undervalued stocks are reviewed based on their price-to-earnings ratio.
In very simple terms, the price-to-earnings ratio (P/E) measures how much investors are willing to pay for each dollar of a company’s earnings (profits). A high or low P/E ratio effectively describes the level of value that investors ascribe to a company’s stock. In other words, the stock is either overvalued or investors expect a high value from it and are placing a high premium.
On the other hand, low P/E ratios mean that investors are not placing high premiums or the market is simply undervaluing the stocks. P/E ratios can be used to compare the performance of companies in a similar industry.
Read also: NGX-ASI records mild dip as investors retain short-term outlook
Here are some of the undervalued stocks in the NGX
FCMB – 1.40x
FCMB has the lowest P/E ratio among the listed banking stocks on the NGX. The stock has a P/E ratio of 1.40x, with its share price appreciating by a mere 14 percent year-to-date.
In H1 2024, the group posted a net profit of N58.5 billion, making a 65 percent year-on-year growth from N35.4 billion posted in H1 2023.
The stock’s undervaluation may be attributed to the group’s approach to shareholder returns, analysts say. FCMB’s final dividend of 50 kobo for FY 2023 produced a dividend yield of approximately 7 percent. Also. for H1 2024, the group is also not proposing any dividend distributions.
GTCO Holdings – 1.62x
Among the top-tier banking stocks on the NGX, GTCO is regarded as the ‘cheapest’ even though the stock has the highest share price. GTCO Holdings with a P/E ratio of 1.62x has the lowest valuation among the top-tier banking stocks.
For GTCO to trade at a P/E ratio of about 2.60 which mirrors the P/E ratio of its contemporaries, FBN Holdings, Access Holdings, the bank’s stocks would have to trade at a share price of around N83.5. With a dividend yield of 8 percent for FY 2023, investors may not be keen on pushing the stock to that price level.
In the market, banking and insurance stocks generally have the lowest P/E ratios.
Coronation Insurance – 1.54x
Among the insurance stocks listed on the NGX, Coronation Insurance has the lowest P/E ratio. The company posted a net profit of N6.3 billion for the half-year ending June 30, 2024, which was a significant growth from the N728 million net loss posted in H1 2023.
Coronation’s growth has positioned it to be a valuable stock for investors. However, the company may need to maintain consistency to appeal to investors, analysts say. As of FYE 2023, the company had accumulated losses of N1.76 billion, which have now been cleared.
John Holt – 1.85x
A surprising undervalued stock in the NGX is John Holt Plc with a P/E ratio of 1.85x. In the nine-month period between September 2023 and June 2024, the company posted a net profit of N643 million, marking a 141 percent year-on-year growth from the N1.6 billion loss posted in H1 2023.
The “undervaluation” of John Holt may be attributed to the non-payment of dividends by the company since 2005. However, since the start of 2020, John Holt has appreciated by 445 percent, representing a CAGR of 53 percent per annum.
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