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What value investors need to know about banking stocks

What value investors need to know about banking stocks
Source: Bloomberg Terminal, NSE, BusinessDay Research

Following the massive outflow of funds from the Nigeria equities market last year on the back of global and domestic factors, including the hawkish policy stance of the Federal reserve, US-China trade war and election concerns in the domestic economy, many investors are keen to identify cheap stocks with strong fundamentals and exciting return potentials.

The consideration of choice stocks require valuation which is critical in investment decisions, making it possible to predict the future price or potential market prices for the investors to time their sales or purchase of investment.

BD Money analysed banking stocks in Nigeria and compiled the ratings of various investment banks from the Bloomberg terminal. This was done to help investors select value stocks and the banking sector was preferred for our analysis because they are the most liquid and transparent in the market.


Although several metrics can be advised, a notable metric to consider while picking banking stocks is the price-to-book ratio, which is the ratio of market capitalization to book value. This metric is used by value investors to identify potential investment. Conventionally, any value under 1.0 is considered a good P/B for value investors, indicating a potentially undervalued stock. However, value investors may often consider stocks with a P/B under 3.0 as their benchmark.

Other yardsticks such as return on equity, return on assets, discounted cash flows and price to earnings ratio among others were used to support our analysis.

The Banking Sector so far in 2019 has enjoyed a fantastic run, despite the cloud of uncertainty hovering over the investment space, which has more recently provided bargain hunters the opportunity to take long-term positions.

The Banking index outperformed the NSE All Share Index by 618 times, to be the best performing sector since the start of the year, according to data obtained on the penultimate day of trading last week.

The Benchmark index, which had moderated to a 0.01 percent Year to Date return, was bested by both the Banking Index (6.18percent) and Industrial Goods (3.75percent).

Paul Aluko, an analyst at MBC Capital said the consistency in the financial performance of banking institutions is one of the drivers of demand for banking stocks.

He further explained that year after year, especially in 2018, players in the sector have posted good results compared to other sectors.

’’What you see is positive sentiments as investors take position in bank stocks ahead of full year results and dividend declaration,’’ Aluko told BD Money.



The soon-to-be merged Tier-1 lender enjoys a 60 percent BUY rating from investment banks, against 40 percent HOLD and no SELL. The one-year target price of the stock is projected at N9.59 while current stock price as of Thursday stood at N6.3. That leaves the bank’s upside potential at 52 percent, which implies that if an investor invests N100 million in Access bank’s shares, he/she could make capital gains of N52 million.

So far in the year, Access stock has lost 7.35 percent year to date-the most of any banking stock- with the stock price gaining 1.61 percent at the close of trading last Thursday.

Access is currently undervalued, with a P/B of 0.3849 times- the fourth least in the industry. The bank’s ROE was at 16.3 percent as at the end of September, 2018, which implies that for every unit of shares held investors earned 16.3 times the value of investment. The bank had a Return on Assets of 0.5 which means it generated N0.5 profit for every naira in assets.

With the merger set to be completed in about two months, the new entity to emerge would likely overtake Zenith bank as the biggest lender by Assets, while Access sets to leverage on Diamond Bank’s retail banking competence to improve performance.


First Bank is one of the most valuable banking brands in Nigeria and operates along four key Strategic Business Units (SBUs) – Retail Banking, Corporate Banking, Commercial Banking and Public Sector Banking.

First Bank currently enjoys the largest market share by deposit. First Bank enjoys a BUY rating of 87.5 percent against 12.50 percent HOLD and no SELL.

The one year target price is projected at N11.42 while market price as at Thursday stood at N7.45. That leaves the bank’s upside potential at 53 percent, which implies that if an investor invests N100 million, he/she could make capital gains of N53 million.

First Bank has lost 6.29 percent this year although remained flat at the close of trading for Thursday.

First Bank P/B as at same day was 0.3922, the second least among tier-1 banks. ROE  and ROA for the entity is 9.4 and 0.24 percent respectively.


Leading Pan-African Bank stands as the only bank with a perfect rating at as all 16 investment houses voted to BUY (100percent).

The one-year Target price of the bank is N12.6 with its market price on Thursday at N7.35. That leaves the bank’s upside potential at 71 percent. That implies that if an investor invests N100 million, he/she could make capital gains of N71 million.

So far in 2019, UBA has lost 4.55 percent and in Thursday’s trading rose by some 2.08 percent.

UBA P/B is 0.5455 which shows the stock is currently undervalued. ROE for the stellar bank shows 15.9 percent returns to shareholders. Also, the lender earns N0.38 for every naira in assets.


A leading multinational financial service provider and the current biggest lender by Asset, Zenith enjoys a BUY rate of 94.44 percent, compared to 5.56 percent HOLD and no SELL recommendation.

The one-year target price for Zenith is N33.71 and share price as at Thursday stood at N24.45. That leaves the bank’s upside potential at 38 percent. That implies that if an investor invests N100 million, he/she could make capital gains of N38 million.

Zenith ties with Fidelity as second best performing Tier-1 stock with a Year to date of 6.07 percent- the most for any TIER 1 bank. On Thursday, zenith gained 7.24 percent to enjoy the second best daily performance after GTB.

Currently undervalued, Zenith P/B stood at 0.9887- the second highest among tier-1 lenders.  The lender has ROE and ROA of 23.8 and 1.1 percent respectively, indicating good profitability performance.


Perhaps Nigeria’s most innovative bank, with digital offerings that appeal to the millennials. GTB has led the pack in breaking new fronts especially redefining the importance of banking with the younger generation,

GTB enjoys a BUY recommendation up to 94.74 percent with 5.26 percent voting a HOLD and no SELL.

The average target price for GTB is N49.06 with share price on Thursday at N38. That leaves the bank’s upside potential at 29 percent. That implies that if an investor invests N100 million, he/she could make capital gains of N29 million.

GTB gained the most of any tier-1 lender, appreciated by 10.3 percent so far in the New Year although in Thursday’s market, it gained 9.51 percent- the most of any banking stock.

P/B of GTB stood at 2.1429, an indication of overvalued while ROE and ROA at 30.1percent and 1.1percent, is the best among the Tier-1 lenders.



Nigeria’s leading retail bank has a BUY recommendation of 45.45 percent against 36.38percent HOLD and 18.18 percent SELL ratings.

Average target price for Diamond is N1.99. So far in 2019, the stock gained 6.42 percent, and equally appreciated by 0.43 percent to close at N2.32 at end of Thursday’s trading.

Diamond has a P/B ratio of 0.2425, an implying that the stock is currently undervalued. The bank’s efficiency to generate earnings from equities is weak reflective in its ROE of 0.55percent, which is the least in the industry.


The stock has 40 percent BUY recommendation compared with 20percent HOLD and 40 percent SELL rating. The average 12-month target price stood at N2.02. FCMB stock gained 15.87 percent year to date.

Share price jumped by 4.29 percent to close at N2.19.  P/B of FCMB is 0.2427, indicating that the stock is currently undervalued. FCMB generates N8.25 profit for every N1 of shareholders’ equity and N0.46 for every N1 in assets.


With an average target price of N2.4, the stock has 58.3percent BUY recommendation, 33.3 percent HOLD and 8.3 percent SELL.

The stock gained 15.76 percent year to date, and emerged the lone loser in the industry at the close of trading in the penultimate day of the week, with share price declining by 2.08percent to settle at N2.35.

P/B of Fidelity is 0.3538, indicating that the stock is currently undervalued. The lender generates N11.13 profit for each unit of shareholders’ equity N0.46 for every N1 in assets.


The Tier-2 lender has 57.14 percent BUY, 42.86percent HOLD recommendation and no SELL.

The stock has the highest P/B in the industry at 2.2069, implying that the stock may be overvalued relative to peers.  Average target price based on analysts’ expectations stood at N55.9.

So far this year, the stock declined 2.19percent year to date, and remained flat at N46.9 at end of Thursday’s trading.

The lender has the highest ROE at 34.53percent and third-highest ROA of 1.10percent in the industry, making it the best-profit performing bank among Tier-2 lenders.



The stock has a P/B of 0.6780, indicating undervaluation,  40 percent BUY, 20 percent HOLD and 40 percent SELL recommendation.

On the average, analysts set a N2.35 price target for the stock in the next 12 months.

The stock gained 31.58 percent year to date, the largest in the industry, with the price per share appreciating by 5.93 percent to close at N2.50.

ROA of the lender stood at 0.19 percent.


The stock has a P/B of 0.5195, with 33.3percent and 66.7 percent SELL recommendation.

Average target price stood at N0.5.

The stock gained 11.1percent year to date, and appreciated by 1.45 percent to close at N0.7.

The lender generates N7.1 return for each unit of equity and N0.21 profit from every naira in assets.

ECO Bank

The stock has equal BUY and HOLD ratings at 42.86 percent.  Average 12-months target price is N18.3.

Share price remained unchanged at N14 year to date, and also close at N14 on Thursday.

P/B stood at 0.5387, indicating that the stock is currently undervalued, and ROE stood at 14.8 percent. ROA settled at 0.21 percent, indicating that the lender earns N0.21 profit for every naira in asset.

Disclaimer:  Information provided is by no means a recommendation but serves to guide investors by providing information as accurate as possible. Hence, BusinessDay takes no liability for any loss incurred.

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