The banking index currently sits at a negative year to date return of 4.37% and has been one of the worst performers this year. Despite this fact, it is also not impossible to still find possible gainers from time to time. In the week ended October 3rd 2014, these two stocks topped the gainers list for the banking index and look set to likely begin what may be just be hyped up rally. Let me explain why. [upme_private]
Skye Bank – AMCON recently announced that it had picked Skye Bank as its preferred bidder for Mainstreet Bank, one of the banks nationalised a few years ago by the CBN. This precipitated a rally for Skye Bank stocks gaining 2.27% on October 2nd and another 6.3% on October 3rd closing the week with a 8.7% pop. Skye Bank’s latest results released in June saw pre-tax profits drop 30% to N7.2billion compared to N10.5billion a year earlier. The stock has also a negative 25% return in the last one year but is up 12% from its year low. I still rate this stock a Sell
Union Bank – AMCON was also involved with Union Bank making the news during the last month after it reported that former Barclays Bank CEO Bob Diamond investment vehicle, Atlas Mara said it had increased its stake in Union Bank to 30%. It purchased the stake from AMCON. The stock has had a somewhat mixed rally since the announcement gaining and losing traction. It however, ended the week 8% higher and has now returned a negative 9.8% this year. Union Bank reported a 44.5% drop in pre-tax profits in its latest half year results posting a profit of N6.6billion as against N11.9billion a year earlier. The Bank still has a negative retained earnings of N269billion which makes it impossible for the bank to dividends anytime soon. It has over N391billion in share premium which it could probably use to set off against the loss. However, they may also need to shore up capital if they are to remain as major player in the banking sector. I rate this stock a Hold
The reason for the gains like I explained is the possible positive impact of the recent acquisition news trailing both stocks. This is the ‘hyped up” effect I was referring to. Occasionally, when the news dies and/or is not backed up be strong earnings the share price fizzles away as investors start to dump the stock.