For the best part of last year, the bulls were on the rampage at the Nigerian Stock Exchange (NGX), and smart matadors rode them to profitable portfolios.
In a year marked by intractable inflation, rising interest rates, insecurity, political uncertainty, and an unhinged forex market, the NGX once again provided the bright spot, returning a healthy 45.9 percent to equity investors in 2023.
The bulls maintained their positions in the new year as the market gained 33.77 percent in the first two months of Q1 2024. So, for those who missed the 2023 party, it is again a great opportunity for them to make a head start. The fixed-income market has become attractive due to rising interest rates. Nonetheless, equities still have so much value if one goes with the winners. In this article, we have looked at three of the most promising banking stocks that would make a great addition to any portfolio. Two of the three we have decided to spotlight are outside the FUGAZ, your usual suspects.
Before investing, though, financial and market experts say it is important to know why you are investing (some invest for capital gain, others for dividend yields, there are short-term and long-term investors, etc.). Articulating your objective will guide your investment decision. “It wouldn’t do to just follow the bandwagon,” cautioned Ambrose Omordion, a capital market expert and partner at InvestData. Experts say before committing money to a stock, it is important to look at its performance: has it been consistent over time? What is the company’s liquidity situation? Does the company have a cash flow problem? What is the company’s commitment to its shareholders over time? Has it been consistent in dividend and/or bonus payments? Compared with others in the industry, how does it fare?
So, where should you be looking?
Fidelity Bank:
Without a doubt, Fidelity is one stock every smart investor needs to consider. Fidelity Bank has been taking very positive steps over the past few years, and this is reflected in its consistent historical performance. The bank has very competent and experienced management led by Mrs. Nneka Onyeali-Ikpe. Under her leadership, Fidelity has maintained high asset quality and a healthy balance sheet. Its regulatory ratios are well above the minimum regulatory thresholds. For two consecutive years, the bank has emerged as the company with the highest earnings per share on the NGX, based on half-year financial figures. Fidelity has very strong corporate governance, with the roles of board chairman and CEO separated and clearly defined.
With its expansion drive, investment in technology and human capital, strong market presence, a wide range of products and services, and aggressive customer drive, Fidelity will remain a strong banking player and an attractive choice for investors looking for diversification and growth opportunities. Its ability to attract SME clients is another plus for the bank, which will see it grow its revenue even as it contributes to economic development. Fidelity Bank is a financially strong bank with a healthy balance sheet size. The 2023 total assets of N6.23 trillion represent about 56 percent growth over the N3.99 trillion in 2022.
The bank has grown its earnings at an average of 15.30 percent per year over the past five years. It has also consistently paid dividends over the past 15 years, with dividends moving within the range of + or – 70.0 percent of 30 kobo per share. It is also one of the most active stocks on the exchange. It is the fifth most traded stock on the NGX over the past three months (Dec 20, 2023–Mar 20, 2024) and has traded a total volume of 1.57 billion shares in 19,422 deals in that period. Overall, the bank’s profitability and key ratios indicate a competently managed bank.
First Bank:
In the last five years, First Bank has had its fair share of boardroom crises and acrimony, which necessitated a total overhaul of the bank’s leadership and core banking structures. Over the years, the bank has also invested heavily in technology to help it cope with the demands of 21st-century banking.
The total overhaul of the bank’s operations seems to be paying dividends. Its audited half-year result for 2023 showed some impressive numbers. Total assets grew to N13.6 trillion from N10.1 trillion in December 2022. Its gross earnings grew by almost 100 percent in that period to N607.7 billion, compared to N333.2 billion in December 2022. Profit before tax was N188.8 billion, up 214.6 percent against N60 billion in June 2022, and profit after tax grew by 228.3 percent to N174.9 billion from N53.3 billion in June 2022.
As part of its efforts to go digital, First Bank has launched fully automated, self-service branches, the First Bank Digital Xperience Centre (DXC), to enable it to tap into the youth population. This result, according to the bank, “reflects the continued positive impact of our strategy and the tremendous progress that we have made in growing and transforming the group.” The bank’s market performance this year to Wednesday, March 20, has been impressive, gaining 68.2 percent in market price to position it among the top 10 performers.
Sterling Bank:
The one-customer bank has continued to recalibrate its operations to enable it to tap into emerging opportunities. Last year, the bank completed its transformation to a financial holding company, which enabled it to operate its key subsidiaries under a single umbrella. With the Holdco structure, the bank’s non-interest banking unit has been upgraded to a full subsidiary, The Alternative Bank. Also last year, the bank witnessed a change at the board level when its chairman, Asue Ighodalo, resigned and was replaced by Olatunji Mayaki.
Sterling’s business strategy is to focus major investments in the health, education, agriculture, renewable energy, and transportation sectors to take advantage of the opportunities in those sectors.
For a tier-2 bank, Sterling has continued to show resilience in the face of an economic downturn to produce solid results. In the half-year audited result for 2023, it grew its balance sheet size by 23.26 percent to N2.290 trillion, and its net interest income stood at N23 billion, a 36.39 percent growth year-on-year over the comparable period of 2022. Sterling Bank is the ninth most traded stock on the Nigerian Stock Exchange over the past three months (Dec 20, 2023–Mar 20, 2024). The bank’s share price gained 20.3 percent year to Wednesday, March 20, 2024, to reflect investors’ interest in the stock.
Overall, experts agree that as long as the underlying economic factors, such as favourable government policies, fiscal discipline and transparency, and a and a conducive economic and business environment, subsist, investors who enrich their portfolios with Fidelity, FBN, and Sterling stocks will benefit immensely, short- or long-term.
Lekan Ahmed is an Investment Consultant
