The Nigerian Stock Exchange (NSE) has continued its bearish trend this week with the market capitalization shedding more than N1.2 trillion in three days. This could be attributed to negative sentiments like falling oil prices, fear of the naira being devalued.
These negative fundamentals have affected Nigeria’s most profitable sector to date in the market, banking sectors, The sector alone shed over 13% between Monday and Tuesday.
Investors are advised to take advantage of the present low prices of banking stocks, especially based on their 2019 financial results, and the dividend yield some of the tier-1 banks have declared. For instance, Zenith Bank declared a dividend yield of 21.46% and Guaranty Trust Bank with a dividend yield of 14.04% as at 10th March 2020
The fact remains that the banking sector, which has over the years been the most liquid sector in the Nigerian stock market, has come under significant swinging of its price recently.
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It’s also stated that based on recently released financial statements by the Nigerian banks, the fact remains that a high number of listed banking stocks on the Nigerian stock market have the potentials to reward investors with solid returns, as they remain fundamentally good and expected to withstand the current unfavourable economic climate this year.
Where they stand: Taking a look at Nigeria’s tier-1 banks, which include Guaranty Trust Bank N19.90 ▼0.25%, Zenith Bank N12.05 ▼7.66%, Access Bank N6.45 ▼6.52%, United Bank of Africa (UBA) N6.20 ▲9.60% and First Bank Nigeria Limited N4.40 ►0% are greatly undervalued based on their price to book ratio standing at 0.8717, 0.4354, 0.4012, 0.3340 and 0.2516 respectively (value less than 1 shows its undervalued) as at March 10th, 2020.
Despite the huge sell-off witnessed lately this week, the fact remains that a significant number of banking stocks listed in the market still have the potential to reward investors with weighty returns.
For instance, as at March 10, the earnings per share (EPS) of Guaranty Trust Bank (N19.95) stands at 6.97; Zenith Bank stands at 6.65; Access Bank stands at 3.04; United Bank of Africa (UBA) stands at 2.52, and First Bank stands at 1.44 (A higher EPS indicates more value because investors will pay more for a company with higher profits).
In addition, market leaders among the Tier one and Tier two banks will continue to remain attractive at current market prices as dividend yield are now in the double digits as well as significant potentials in the medium to long term.
Although the tight monetary policies of the Central Bank of Nigeria (CBN) have continued to pummel the sector with a multiplier effect on the equities market as banks have been told to focus more on providing loans and advances to small businesses by the apex regulator. CBN also warned the financial institutions to keep their non-performing loans (NPLs) under check, to guard against eroding income that could peg their upward movement.
It should be noted that the Nigerian equities market is currently selling at a discount that offers high upside potentials for investors to position for short to long-term capital appreciation.
In a telephone interview with Nairametrics, Head, Capital Market, TRW Stockbrokers, Abdul Rasheed Momoh, said that most banking stocks were trading at a discount that offered the best time for investors to start buying.