Nairametrics| The Nigerian Banking Index is currently up 0.42% year to date compared to the wider All Share Index which is down 6.36% year to date. A lot of the positive sentiments being recorded in the banking sector comes from the likes of Access Bank, GT Bank, UBA and Zenith Bank. Wherever they go, the index goes.

As we await the release or their respective results in March, investors who have long taken position are waiting in line to see how much upside they can accumulate before they either enjoy dividends or exit. Let’s take a cursory look at some of these stocks to see what potential upside exists.

Access Bank

Access Bank currently trades at N6.82 and has returned about 18% YTD. This is largely the reason why the Banking Index has remained positive this year. In terms of fundamentals, Access Banks appears likely to beat its 2015 results if you consider its 9 months 2016 results. The company reported profits were up 19% at the end of September 2016 on the back of improved interest income. If the final year results remain within this trajectory, then we expect a profit after tax of about N78 billion. The problem however, is with earnings per share. Back to that later.

Access Bank paid a dividend per share of 30 kobo when it released its results in March 17, 2016. Its share price dropped to N3.95 a day after suggesting an indicative dividend yield of 7.6%. We do not expect more than a 40k dividend per share considering that it already paid 25 kobo in November 2016. Nevertheless, investors are unlikely to react to any dividend announcement by Access Bank so we do not expect to see an upside based on that. Any upside on the other side of N7 for Access Bank will depend on activities of major shareholders of the company as well as foreign investors, who in recent weeks are thought to be actively purchasing the stock.

Access reported an EPS of N1.9 in the first 9 months of 2016, essentially flat when compared to the year before. Thought profits were 20% up, EPS was down due to an increase in the number of shares during the year. This limits any potential positive impact a growth in earnings might bring. However, at a projected EPS of N2.6 (same as 2015) its share price could trade at N7.8 assuming we apply a modest P/E of 3x.

Is it plausible? Possibly, but that depends on whatever appetite foreign investors still have for the stock. I see the stock touching N7.5 cum div suggesting an upside to current price of 10%.  Access Bank year high was N7, achieved on the 24th of January 2017. Access Bank currently trades at trailing earnings multiple of 2.5x.

Guaranty Trust Bank

GTB closed last week at a share price of N24.3 and has returned about -1.62% year to date. The company is also expected to return significantly higher profits compared to last year. Interim dividend last August was 25 kobo while it also declared a dividend per share of N1.52 on the 14th of March 2016. Share price was N16.20 a day after it announced that result. Admittedly, that was a bearish period for most stocks. GTB typically increases its dividend every other year and we could see dividend touch N1.6 for the first time ever. At a 7% dividend yield, that will place its share price at N22 suggesting that the current share price could be overvalued. If it pays N2 which is highly unlikely, then we could see a share price of N28.5.

Also, important to note that GTB is trading at trailing earnings multiple of 4.8x, a premium to its peers. I don’t see full year EPS rising beyond N5.6 which at current P/E will imply a price of N26.88.

Just like Access Bank, fundamentals won’t play a significant role in determining how much upside this stock has. For GTB, what could be at play is if foreign investors decide to load up the stock either for dividend play or positioning ahead of a positive outlook for the company and the economy. GTB’s year high is N27 achieved on the 10th of September 2016 and about 9 days after it closed its register. My view is a maximum price of N27 for this stock or an upside of 11.11% to current price cum div.


UBA closed on Friday with a share price of N4.85 and just 2 kobo off its year high. Last year it paid a dividend per share of 50 kobo which helped push share price to N3.41 kobo. 2016 9 Months profit after tax was N52 billion, 7% higher than same period last year. It also paid an interim dividend of 20 kobo per share in August 2016. I doubt UBA can afford paying higher than 50kobo per share when it releases its results in March. If it repeats the 50-kobo dividend payment, then it could be on the hook for another N18 billion in payouts in addition to the N7.2 billion it already paid in August. At a projected profit after tax of N56 billion, that will be about 45% payout ratio. The last time UBA paid above 50 kobo per share was in 2008.

UBA has a price earnings multiple of 2.62x based on its 2015 earnings and as such has some potential upside available to risk takers. UBA appears good for N5.5 if it declares earnings per share that is not less than N1.9. UBA posted an EPS of N1.5 as at September 2016. Upside here is around 13.4% cum div.

Zenith Bank

The last one year has been particularly tough investors in this stock especially if you compare it to the type of multiples placed on GTB’s earnings per share. It currently trades at N15 and has gained about 1.69% YTD. The bank reported an EPS of N3.18 in its 9 months 2016 results representing a 20% increase year on year. The bank also paid interim dividend per share of 25 kobo in 2016 after paying N1.5 in March 2016. Assuming Zenith Bank decides to match GTB and pays N1.62 then an upside could be in play.

Flipping the coin to price earnings multiples also supports this view. At the current P/E of 3.85x a full year earnings per share of N3.96 suggest the share price of N15 is just about right for the stock. However, if investors were to assign GTB’s current multiple of 4.8x then Zenith could be worth N17.85. Zenith already reported a 9 months EPS of N3.18 and I expect fourth quarter EPS to touch 80 kobo per share. It is unlikely that the market will price Zenith at 4.8x multiple but a 4.5x earnings multiple is likely if it matches GTB’s dividend and hits my target EPS of N3.99. That will assume a target price of N17.91. Upside here in my opinion is around 19% cum div. Zenith last hit N17.9 in June 2016.

My conclusion is that these stocks still have potential upsides between now and when they release their results. This is purely my opinion and I expect that you carry out your own independent research before making investment decisions.


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