The Nigerian equity market continues to print lackluster performance on account of weak investor confidence over limited growth prospects of the broader economy combined with softer crude oil prices and fears of global recession.
Despite the rout on the Nigerian Exchange which has seen sizeable number of stocks trade at fresh lows, albeit some stocks still offer significant upside potentials.
Restricting the coverage to the banking industry, some stocks in this sector have attractive valuation and hold opportunity for long-term growth which will be of immense benefits to future-minded investors.
Though trading at huge discount, it’s a smart move for investors with a long-term investment horizon to take position in the following stocks given their good earnings performance, remarkable asset quality, sound dividend payment track record, attractive yield and bright short and medium-term outlook.
Zenith Bank
Nigeria’s second most-valuable lender is trading at a price-to-book ratio of 0.68, implying that investors are paying 68 kobo for each naira in net assets.
With return on equity at about 14 percent mid-year 2019, the lender is efficient in using equity to fund operations and grow business.
Zenith Bank is one of the country’s most profitable and efficient lenders with consistent records of dividend payment and asset quality. The bank declared 9 percent profit growth mid-year 2019, despite lower interest income, thanks to stronger non-interest income precisely electronic banking.
The bank concentrates more on low cost deposits from retail customers to minimise cost of funds in a bid to keep interest margin at an attractive level bolster profit performance. The bank’s bad loan ratio notched slightly higher to 5.3 percent half-year 2019 from 4.9 percent in similar period of 2018, owing to drop in credit
The lender says it is making efforts to widen presence in Nigeria’s retail banking space by creating new retail loan products in a bid to meet the CBN’s loan issuance. Analysts at FSDH estimates that Zenith Bank might need to provide additional N484 billion loan to satisfy CBN’s directive effective September 30.
Its shares gained 3.75 percent to N18 Friday, and have shed about 22 percent since January.
Fidelity Bank
The bank is trading at price-to-book ratio of 0.22, implying that the stock is currently undervalued.
Fidelity Bank generated N6 profit on each naira of owners’ fund mid-year 2019, similar with the previous comparable period, indicating that the lender is efficient in utilizing shareholder investment to expand operations.
Going by current fundamentals and growth prospects, the bank is on course to deliver attractive return to investors in the near to medium term, analyst say.
The bank’s earnings quality is attractive as the lender runs sustainable business model which ensures that bulk of earnings comes from core business activities.
The lender’s asset quality of 5.2 percent is slightly below the Central Bank of Nigeria’s (CBN) 5 percent regulatory threshold, and this will most likely be sustained going forward as the bank has said it is going to be less aggressive to create new loans in coming quarters.
The bank did not declare interim dividend for the half-year period of 2019, but has one of the highest dividend yields (of 7.10%) in the industry. Its shares advanced 0.65 percent to N1.55 Friday, and have shed by 26 percent since January, under-performing the benchmark index that returned 13 percent loss.
Guaranty Trust Bank
Nigeria’s most valuable lender continues to stand tall in the banking industry. The bank is trading at a price-to-book value of 1.31 times, implying that investors are bullish on its growth prospects going forward.
This lender has the highest return on equity in the industry, generating as much as N16 for each naira of shareholders’ funds.
The big bank is heavily investing in technology and deploys this service to retain existing customers and attract new ones. This paid off for the bank as non-interest income surged 16 percent in the first six months of 2019.
The bank has good asset quality and liquidity position. At its recent conference call with investors, the bank has disclosed plans to explore inorganic growth strategies including potential acquisitions in East Africa to expand operations.
Its shares depreciated 1.32 percent to N26.15 Friday, but has plunged 24 percent since the start of the year.
