Nigeria’s largest bank by market capitalization, Guaranty Trust Bank (GTB) closed the week at a share price of N23, its lowest since January 2017. Investors dumped shares of the orange bank amidst fear of the negative impact of the Coronavirus.
GTB last hit this low in 2016/2017 at the height of the forex crisis and an economy still struggling to get out of recession. The bank’s shares, however, gained rising above N49 in 2018. The latest drop is a culmination of a share price volatility that began in 2019. GTB share price is down 19.8% year to date, one of the worst performers of this year in the banking sector.
Despite the drop in its share price, some investors are willing to take a bet on the stock.
Why is the stock cheap?
- At a current share price of N23, GTB is trading at just 3.5x, it’s trailing twelve months earnings per share. This is cheap and one of the cheapest price the stock has traded on.
- The current dividend yield is 11.55% and could rise when it publishes its results. GTB also regularly pays dividends.
- GTB is a well-run company and will very likely post a profit topping N200 billion in 2019.
- In terms of return on equity, the bank is strong at about 32.8% – one of the highest in the industry.
Are there risks?
Yes, there are but the risks are not fundamental. A fundamental risk is when the company share price is falling due to issues in the operations of the bank or an expected dip in profits. However, this is not the case for the bank. As mentioned, the bank’s share price drop is associated with external factors (foreign investors not buying stocks).