Q1 earnings seen improving investor appetite for bank stocks

Despite its negative start to the new week, Nigeria’s equities market looks good to recoup previous losses as investors price-in some of the positive first-quarter (Q1) earnings reported by some companies, especially the banks.

Despite that the market declined by 0.90 percent on Monday May 6, all key NGX sectoral indices closed in green, driven by NGX banking (+2.45percent) and NGX Insurance Index (+2.03percent), while NGX Consumer Good and NGX Industrial indices went up by 0.58 percent and 0.25 percent respectively.

The unaudited Q1 2024 results of United Bank for Africa Plc showed a 166.1 percent year-on-year (YoY) growth in profit after tax (PAT) to N142.58 billion, with an earnings per share (EPS) of N3.96 (versus N1.47 in Q1’2023). Also, the unaudited Q1’24 results for GTCO reported a 4.35x YoY growth in earnings to N676.64 billion with a PAT of N457.13 (versus N58.17). CardinalStone asked investors to buy UBA shares May 3 note.

“The results highlight a 2.3x growth in its core performance and a 38.9percent uptick in non-interest income, resulting in a 108.2percent YoY increase in gross earnings to N518.68 billion (Q1’23: N248.0 billion),” said CardinalStone research analysts who noted that following strong Q1’24 earnings from Tier-1 banking names, they would begin building their overweight position in GTCO and Access Holdings.

They also noted that highlight of GTCO result was a N331.55 billion fair value gain on financial instruments “which contributed about 49percent to the entire gross earnings”.

On April 29, Coronation research analysts said, they would build their overall notional position in the banks back up towards a neutral weight “as we believed that the sell-off since March 28, had gone far enough, given the limited implications of dilution. This is still work in progress so we will continue with it this”.

Zenith Bank’s Q1 2024 unaudited numbers showed a strong 154.9percent y/y growth in Interest Income driven by growth in Interest Income on both Net Loans and Investment Securities. Net Loans to Customers grew 114.7 percent y/y (Q1 2024 compared with Q1 2023) but were up 31.9percent in Q1 2024 compared with the December 2023 position (inclusive of the impact of devaluation on foreign currency loans).

Interest Expense also grew strongly, up 157 percent y/y. Customer Deposits grew 83.7percent y/y but increased 10.7percent in Q1 2024 relative to the December 2023 position (inclusive of the impact of devaluation). Overall, Net Interest Income grew 153.7percent y/y.

Net Fee and Commission Income also grew strongly, up 69.0% y/y. The y/y growth was due to significant increases in credit related fees, account maintenance fee, income from financial guarantee contracts issued, fees on electronic products, foreign withdrawal charges and commission on letters of credit.

Despite downward reversal in their target price for Fidelity from N15 to N11, Vetiva research analysts in their May 3 note want investors to buy Fidelity Bank shares.

Fidelity Bank Plc posted an impressive 120.1 percent growth in Profit Before Tax from N17.9billion at the end of first quarter (Q1) of 2023 to N39.5billion for Q1 2024. The bank’s gross earnings increased by 89.9 percent year-on-year (yoy) to N192.1billion from N101.1billion in Q1 2023. The increase was led by a combination of interest income (90.7 percent yoy) and non-interest income (84 percent yoy).

Futureview analysts want investors to buy Access Holdings considering their Price Target of N30 per share for the stock. The share price was N16.85 as at April 30, 2024, representing potential upside of 78percent. Also, Coronation analysts want investors to by Access Holdings saying their price target for the stocks is N29.93 as against N16.85 it closed on April 30, 2024, representing potential upside / downside of 77.6percent.

“It is noteworthy that Access Holdings Plc faced challenges in the stock market, starting the year with a share price of N23.15 but experiencing a 27.2% decline since then. This decline ranks it 146th on the NGX in terms of year-to-date performance. The negative sentiment surrounding the stock is largely attributed to the Central Bank of Nigeria’s recapitalisation demand.

“Despite this setback, the underlying strength of Access Holdings Plc’s business fundamentals suggests that it may rebound and regain investor confidence over time,” Futureview analysts said on May 2.

Access Holding’s Q1 2024 unaudited numbers showed gross earnings of N974.24billion from N424.917billion in Q1.23, up 129percent. PBT was N202.739billion in Q1’24, from N81.738billion in Q1’23, up 148percent. Earnings per share was 4.35 from 2.06 in Q1’23, up 111percent.

It also reported a 183.1percent y/y growth in Interest Income driven by growth in both Interest Income on Net Loans and yields on investment securities due to a higher yield environment and growth in earnings assets. Net Loans grew 19.7percent in Q1 2024 compared with the December 2023 position, inclusive of the impact of devaluation on foreign currency loans.

Interest Expense also grew strongly reflecting the high interest rate environment, up 179.3percent y/y driven mainly by strong growth in Interest Expense on deposits from financial institutions (up 364.7percent y/y) and deposits from customers (up 108.4percent y/y). Overall, Net Interest Income grew strongly, up 189.4percent y/y Customer Deposits were up 18percent in Q1 2024 compared with the December 2023 position also inclusive of the impact of devaluation on foreign currency deposits.

“In our view, the positive momentum in the Nigerian equities market will be sustained this week as investors continue to seek bargain-hunting opportunities in the market. Additionally, further Q1:2024 earnings releases are poised to improve investors’ dampened mood, thus, driving buying interests.

“However, given the elevated yields in the fixed income market and low system liquidity, the T-bills auction on Wednesday could limit inflows into the equities market. On a balance, we expect the bullish sentiment to prevail in the local bourse,” said Meristem research analysts in their May 6 stock recommendation.

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The equities market rose by 1.4 percent in the holiday shortened trading week ended Friday May 3.

Nigerian Breweries Plc declared a net loss of N52.10 billion in its unaudited Q1’24 results (versus N10.7 billion in the corresponding quarter last year), driven by a significant net loss on FX transactions amounting to N72.9 billion (versus N14.6 billion recorded Q1’23).

The company recorded a stellar revenue performance (+84.2percent YoY to N227.1 billion), which, in our view, is driven largely by price increases implemented during the period. Nevertheless, the brewers operating profit margin surged to 11.1percent (versus 1.5percent in Q1’23).

“We expect the bearish sentiments amongst investors to persist in the local equities market given the recent developments in the fixed-income market. The impact of the high yields in the fixed-income market will continue to drive sell-offs as investors switch their asset classes to less risky assets.

“However, we expect bargain hunting activities to lurk in the shadows, owing to the tremendous opportunities presented by the recent bearish trend (particularly around the banks),” according to United Capital research analysts in their May 6 note.

International Breweries’ Q1 2024 unaudited numbers showed revenue growth of 89.7percent y/y to N103.22billion from N54.39billion (Q1 2023). On a quarter-on-quarter (q/q) basis, revenue was up 34.4percent from N76.82billion in Q4 2023. The company reported Loss of N60.39billion compared with a loss of N2.31billion in Q1 2023, making it the sixth consecutive loss-making quarter.

Lafarge Africa Plc unaudited Q1’24 results showed strong topline growth, but a decline in earnings, as foreign exchange (FX) losses mounted.

”For the first quarter, Lafarge recorded strong revenue growth of 50percent y/y to N137.7 billion, driven by improved sales volumes, and higher cement prices.

On the other hand, cost of sales increased by 59percent y/y to N72.1 billion. Despite management’s efforts to rein in the cost pressures, cost of inputs such as fuel, power, and raw materials (+61percent y/y: N45.5 billion) was exacerbated by the rising inflationary pressures and the continuous weakening of the currency. In light of this, gross margin declined by 2ppts to 48percent y/y, bringing gross profit to N65.6 billion, up 59percent y/y,” Vetiva research analysts said on May 2, asking investors to buy the share.

“Looking ahead we expect the commencement of the rainy season to dampen construction activities and ultimately cement volumes. However, we expect that the higher pricing environment will remain prevalent despite the government’s intervention. That said, we forecast a revenue growth of 3percent y/y to N453.7 billion. On the cost front, despite the biting effect of rising inflation and currency weakness on costs, we expect management to continue its cost control efforts in the coming quarters,” Vetiva research analysts said.