Companies
Are These Signs That Banking Stocks Are About To BOOM>>>>>
The Banking Sector has had a tumultuous 2014 as strict regulatory and monetary policy guidelines threaten their profitability in the months to come. Investors did not take pity on the industry as many dumped banking stocks altogether or preferred to put them in the speculative territory (riding on their high liquidity). But can this slide last forever? Or are we about to witness a huge shift? Usually, huge rally’s give us signs but not after the rally is in motion do we in retrospect start to acknowledge the signs. So, I decided to take a leap of faith and identify 8 reasons why I think the Banking stocks may just be on the start of a bullish run.
- At the end of March 2014, the Nigerian Banking Index had a year to date return of -18%. It dropped to -11% in April and as at end of May it was -1% and at the end of last week (June 6) it was -0.48%. Has the index turned the corner?
- We have a new CBN Governor who will surely bring fresh ideas and will look to take a different direction from Sanusi. One would expect a softer policy stand from Emefiele and rather than continue to rock the boat, I expect him to build bridges. One of the first being with his former colleagues.
- The CBN Governor did take out charges on deposits and promised to bring down interest rates. These might seem like another move that will affect bank bottom lines but I see it differently. A lower interest rate regime suits the need for banks to create and take advantage of better risk assets. The lesser the interest rates, the more people will want to borrow and the lesser the risk of default as well. Consumer loans, mortgage and other lucrative risk assets will open up banks to new sources of income
- The CBN Governor has promised to encourage SME Finance and promised to back it up with a stronger and efficient credit bureau. He also promised a Registry for Collateral which augurs well for banks on the long run. The safer the collateral the safer the banks.
- Banks currently have one of the lowest P.E ratios in the industry which provides a strong potential for upsides. See chart below.
Compare to the likes of Oando with a P.E ratio of about 17x and Forte Oil over 50x. - Banks* posted about N450b in profits in 2013 down from N500b in 2014. Despite drop in profits, Banks still posted an average Return on Equity of about 15%. In fact, tier 1 banks (GTB, Zenith, FBNH, UBA & Access) returned an average of about 20% at the end of 2013. Bottom line is that despite the drop in profits, banks are still posting profits and declaring dividends.
- Nigerian banks have been able to borrow at the foreign market which to me is a sign of confidence by foreign lenders. Also the MSCI Index for Nigeria has just 10 stocks. 40% of that portfolio includes Nigerian banks (UBA, GT Bank, Zenith Bank and FBNH). International investors see the opportunity.
- Finally, the big 5 banks have gained an average 20% in the last one month alone yet they are yet to cross their one year highs. As such, any talk of the price being over sold or over valued may just be shortsighted.
What do you think? Are these signs or just another meaningless statistics?
*Banks I used were Zenith, GTB, Diamond, Skye, Stanbic, ETI, Sterling, UBA, Access, FBNH, Fidelity, FCMB, Unity,Union
Companies
NAICOM gives insurance companies additional one year to recapitalise
In the meantime, the insurance companies are expected to meet at least half of the capital requirements by the end of 2020. The final deadline to fully recapitalise is September 2021.
The National Insurance Commission (NAICOM) has given insurance firms in the country one more year to meet the recapitalisation obligation that was recently set for them.
Apparently, it became imperative for NAICOM to set a new deadline for the recapitalisation process, considering how the Coronavirus pandemic has disrupted the activities of most companies, including the insurers. Bloomberg quoted the insurance regulator to have said that “the incidences of COVID-19 pandemic have made it difficult to proceed with the Dec. 31, 2020 recapitalization deadline.”
In the meantime, the insurance companies are expected to meet at least half of the capital requirements by the end of 2020. The final deadline to fully recapitalise is September 2021.
Recall that Nairametrics had reported in April about NAICOM considering the extension of the recapitalisation deadline. Now, it has finally happened. And this is the third time an extension has been implemented since the recapitalisation programme was first announced in May 2019. Prior to this time, NAICOM had extended it from June 30th, 2020 to December 31st, 2020.
The recapitalisation programme is requiring life insurance firms to meet a minimum paid-up capital of N8.0 billion, up from N2.0 billion previously. In the same vein, general insurance companies are required to raise their minimum paid-up capital to N10.0 billion from N3.0 billion previously.
READ MORE: If you experience these signs then know your salary is not enough
The regulatory capital for composite insurance was raised to N18.0 billion from N5.0 billion previously while reinsurance businesses are now required to have a minimum capital of N20.0 billion from a previous N10.0 billion.
Nairametrics had reported that some insurance companies have been struggling to meet these requirements. There were also wide-spread speculations over possible mergers/acquisitions in the insurance sector. At the moment, only the top insurance firms have been able to meet the capital requirements. The deadline extension is, therefore, expected to help them comply.
Companies
Nigeria’s tier-1 banks earn N18.4 billion from account maintenance charges in Q1 2020
Banks’ earnings from account maintenance charges, though low when compared to other revenue streams, still make up a significant portion of their non-interest income.
Nigeria’s tier-1 banks — comprised of First Bank, UBA, GTBank, Access Bank, and Zenith Bank (FUGAZ) — generated a total of N18.4 billion from bank maintenance charges in Q1 2020. The sum is 17.12% more than N15.6 billion that was generated by the five banks during the comparable period in 2019.
This is according to recent checks by Nairametrics Research, a breakdown of which revealed that Zenith Bank generated the most income from account maintenance fees, followed by Access Bank and then, GTBank.
See the breakdown below.
- Zenith Bank Plc: N5.7 billion
- Access Bank Plc: N3.9 billion
- Guaranty Trust Bank Plc: N3.3 billion
- First Bank Plc: N3.1 billion
- United Bank for Africa Plc: N2.3 billion
READ MORE: Stocktaking: Ebenezer Onyeagwu’s year as CEO of Zenith bank
What you should know about account maintenance charges
Banks’ earnings from account maintenance charges, though low when compared to other revenue streams, still make up a significant portion of their non-interest income.
According to the latest directive by the Central Bank of Nigeria on bank charges, Nigerian banks are allowed to charge their customers a “negotiable” N1 per mille. What this means is that banks can charge N1 per N1000 debit transactions on current accounts. Banks’ account maintenance charges come in the form of COT (i.e., Commission on Turnover) which is a charge levied on customer withdrawals by their banks. In Nigeria, these charges are mainly applicable to current accounts.
“Current Account Maintenance Fee (CAMF): Applicable to current accounts ONLY in respect of customer-induced debit transactions to third parties and debit transfers/lodgments to the customer’s account in another bank. Note that CAMF is not applicable to Savings Accounts,” said part of the CBN directive.
(READ THIS: You must know these terms if you want to own a bank account in Nigeria)
Customers don’t like account maintenance charges
Interestingly, a lot of Nigerian bank customers are not keen on bank maintenance charges. After all, nobody likes to get debit alerts, especially so when such is coming from their banks. Perhaps, the main reason some customers dislike bank maintenance charges is because they tend to be higher than the interest capitalised entitled to such customers. Professor Ayobami Ojebode of the Department of Communications and Language Arts, University of Ibadan, recently complained about this, saying:
“Dear bank, I see o! Don’t think I don’t see you! You credit me N50 interest on my savings and debit N150 for account maintenance & card fee etc! Come here, what do you really think you are doing?”
Business News
MTN, Dangote Cement, Nestle, others top best dividend stocks in 2019
MTN Nigeria, Dangote Cement, Nestle Nigeria, Stanbic IBTC, GT bank and Zenith bank were the highest paying dividend stocks on the floor of the NSE in 2019.
Dividend payment is one of the very few ways available for investors to earn a constant stream of income. It is also the main reason shareholders hold unto their shares in a company. Therefore, it brings great satisfaction to investors when these companies declare dividends to their shareholders.
According to data gathered by Nairalytics, the research arm of Nairametrics, MTN Nigeria, Dangote Cement, Nestle Nigeria, Stanbic IBTC, GTBank, and Zenith bank were the highest paying dividend stocks on the floor of the Nigerian Stock Exchange in 2019.
With a combined value of N691.23 billion, these six companies make up a diverse list that includes the telecommunication, food and beverage, industrial manufacturing, and banking sectors.
Here’s a breakdown
MTN Nigeria Communications Plc posted a total dividend per share of N7.92k (interim – N2.95k, Final – N4.97k), summing up to N161.21 billion. A dividend payment was made on May 19, 2020, to shareholders whose names appeared on the Register of Members as at April 17, 2020.
(READ MORE: Why these companies remain on NSE’s delisting radar)
The telco giant’s revenue of N1.17 trillion in 2019 against N1.04 trillion in 2018 represents a 12.6% increase. Profit after tax (PAT) also increased significantly by 38.7% from N145.7 billion in 2018 to N202.1 billion in 2019.
Dangote Cement Plc declared a total dividend payout of N272.65 billion. This breaks down to every shareholder of the company earning N16 on every share held. A payment expected to be made after the company’s annual general meeting is scheduled for June 16, 2020, with a qualification date of May 25, 2020.
It is worth noting that the cement manufacturing giant posted a profit after tax of N200.52 billion, a 48.6% decline when compared to a profit of N390.33 billion recorded in 2018.
Nestle Nigeria Plc declared a total dividend of N70 per share to its shareholders, indicating a total payment of N55.49 billion. The leading consumer goods maker generated N284.04 billion in revenue for the year ended December 2019.
The multinational’s profit after tax stood at N45.68 billion, a 6.22% increase compared to N43.01 billion posted in 2018.
(READ MORE: List of Dividends announced so far in 2020 (May))
The management of Stanbic IBTC Holdings Plc proposed a total dividend per share of N3 (interim – N1 and final – N2) per ordinary share of 50 kobos each, which summed up to N31.57 billion. The interim dividends (N10.47 billion) was paid on October 3, 2019, while the final dividend of N21.01 billion is expected to be paid by June 18, 2020.
The bank’s full-year result shows that the group’s gross earnings increased by 5.2% from N222.36 billion in 2018 to N233.81 billion in 2019.
Stanbic IBTC’s profit after tax for the period recorded a marginal increase of 0.8% to N75.04 billion compared to N74.44 billion in 2018.
Guaranty Trust Bank Plc declared a total of N82.41 billion to shareholders on March 30, 2020 as dividends for the year ended 2019. This indicates a total dividend payment of N2.8 per 50 kobo ordinary shares to shareholders. Final dividend was paid on March 30, 2020 to shareholders whose names were registered in the company’s register of members as at March 18, 2020 which was the qualification date.
GTBank, which is Nigeria’s most capitalized bank, posted a profit after tax of N196.85 billion, showing a 6.5% increase compared to N184.71 billion recorded in the preceding year.
GTBank
Zenith Bank Plc also paid N2.8 dividends per ordinary share to its shareholders, summing up to N87.91 billion (interim – N9.42 billion, Final – N78.49 billion) for the year ended 2019. The bank posted profit after tax (PAT) of N208.84 billion in the year under review.
(READ MORE: CFOs of FUGAZ and their 3-year performance record)
The final dividends were paid to Shareholder in March 2020 whose names appeared in the Register of Members as at close of business on 9th March 2020.
What is dividend?
A dividend is a payment by a company to its shareholders, which is paid at the end of a quarter or year. Note that dividends are usually cash payments, although they can sometimes be paid out in company stock.
(READ MORE: NSE Set to Host Sustainable Capital Markets Forum to Promote Green Finance in West Africa)
What to look out for in dividend stocks
The following are what you should look out for in dividend stocks:
Payout Ratio: The dividend payout ratio is the percentage of a company’s earnings it uses in paying out dividends. This is an important metric to use when digging into dividend stocks you are considering to buy.
Dividend History: This is simple. All a potential investor needs to do is to check the track record of the company. Many of the companies mentioned above have trackable and impressive track records, including long records of paying annual and interim dividends.
Industry Strength: Here, it is better to own shares in a decent company in a great and lucrative sector than owning shares of a great firm in a tough industry.
Dan
June 14, 2014 at 5:01 pm
Nice article Ugo. I equally think the market has been pessimistic towards banking stocks largely for the reasons you have already stated…albeit, it was overdone. There certainly is a lot of potential in banking stocks particularly in the long term. Nigeria has an huge overhang of infrastructural under-development and banks will have ample opportunity to have their pick from the lot of investments down the road. Size would matter if a bank is to access the biggest projects; these projects are also likely to have lower attendant risks. I particularly like First Bank because it strikes as being highly discounted.
Ugodre
June 15, 2014 at 7:28 pm
Very good points you have raised. I am bullish on the sector too…but however optimistic cautious. Whilst they are seemingly undervalued, we also need to continue to access their risk assets as we move on. Thanks for your comments
Ogus
September 16, 2014 at 11:15 am
bearish season always a good time for entry ! The banking index may likely see post election bull run ard Q2′ 2015 after the election monetary pressures calm.
The recent ETI transaction and prev Union bank trnx by shows foreign investors are eyeing the Nigerian banking sector closely. Its just too cheap compared with other frontier mkts