The Nigerian Stock Market has maintained its bullish run which began after the CBN introduced the Investors’ and Exporters’ Window. The window allows forex importers to bring in money into the country at rates purely determined by market forces.

The bullish run has led to a significant appreciation of most stocks, reflected by the All Share Index which as gained over 40% year to date. But for those who may have missed out on the rally or wish to keep making money are there still undervalued stocks?

Investors love undervalued stocks, so we have put together the lists of some stocks that we still think are undervalued.

Most investors define an undervalued stock as a stock that is selling at a price significantly below what is assumed to be its intrinsic value. For example, if a stock is selling for N10, but it is worth N25 based on its intrinsic value, then it is considered an undervalued stock.

We will be using the trailing twelve-month (TTM) price to earnings (P/E) ratio to determine the value of each stock. There are other valuation methods used by analysts to determine the value of stocks.

 

Zenith Bank

Zenith Bank has been one of the movers of the Nigerian equity market as the lender’s stock has gained 66.17 percent this year, outperforming the NSE ASI index.

A Non-Performing Loans (NPL) ratio of less than the 5 percent and below the regulatory threshold means profit may not be pressured in the future. A consistent earnings growth has earned it “Buy Ratings” from various investment houses.

Zenith Bank’s dividend yield (DY) of 8.24 percent is higher than other tier one lenders’. However, the banks’ price to earnings multiples of 5.48x is lower than GTBANK’s 7.83x.

There are positive prognoses for this stock as it could be trading at 7.45x while shares could jump to N34 from N25 as of close of trading on Thursday, August 10, giving an upside potential of 36 percent.

 

UBA

This stock has gained 110.89 percent since the start of the year, buoyed by consistent growth in earnings and a steady dividend policy. Despite the favourable outlook and buy ratings by analysts based on the lender’s stellar performance, it is trading at a price to earnings multiple of 4.35x.

There are upside potentials for the stock as it could be trading at 5.35x earnings. At this valuation, it means UBA stock could be trading at N11.67 from N9.49 at current price, giving an upside potential of 23%.

 

Access Bank

It is clear that investors have been seeing value in this stock as its shares have gained 77.68%, outperforming the NSE ASI Index. It has a price to earnings ratio of 3.76x and a dividend yield of 6.23 percent.

The stock could be trading at price a price to earnings ratio of 5.11x. This means stock price has the potential to move to N14.02 from N10.31 as at close of trading, giving an upside potential of 36 percent.

 

Fidelity Bank

Fidelity Bank’s shares have gained 54.7g% since last year while its dividend yield stood at 10.77 percent.

The lender’s pre-tax profit grew by 20.54% to N4.84 billion in March 2017 compared to N4.0 billion the previous year; driven by the N0.5 billion growth in net interest income and N1.7 billion decline in total operating expenses.

Fidelity Bank stock is trading at a price to earnings ratio of 3.59x tough it could trade at 4.23x. This means share price could hit N1.53 from its current N1.30, giving an upside potential of 18 percent.

 

Presco

It is a surprise that this stock is undervalued being one of the best performers on the NSE both in terms of earnings growth and stock appreciation.

It has maintained a 10 month streak of sales growth as sales increased by 70.70 percent in the first six months through June 2017 while net income spiked by 84.35 percent.

The company’s shares have risen 79.30% since the start of the year. Its stock is trading at 2.97x and could trade at 3.67x based on the principles of price to earnings ratio.

The aforementioned valuation means share price could trade at N84.93 from N71.98 it closed at the same day, giving an upside potential of 18 percent.

Presco has embarked on an aggressive expansion with a view to increasing its share of the market. The understanding is that such expansion plans will translate to increased sales while at the same time trickling down to the bottom line.

 

 

"Jon Snow" is a financial analyst and senior contributor at Nairametrics. His pinpoint fundamental analysis of some of Nigeria's largest companies provide our readers with an unbiased and balanced opinion helping them make sound investing decisions . Snow covers capital markets for Nairametrics and frequently provides commentary on topical economic issues.

1 COMMENT

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