It’s no longer news that Nigerian banks play a leading role in Nigeria’s financial system. However, the banking sector, which has over the years been the most liquid sector in the Nigerian stock market, has experienced significant price swings lately.
Also, based on recently released financial statements by the Nigerian banks, a high number of listed banking stocks in the Nigerian stock market have the potentials to reward investors with solid returns, as they remain fundamentally good and are expected to withstand the current unfavorable economic climate this year.
Nairametrics interviewed some financial experts, entrepreneurs, and corporate heads and asked for their opinions on their favourite banking stocks and why they chose them.
Their reasons for selecting these bank stocks were instructive and varied, from the usual tier-1 banking brands (GTbank, Zenith Bank, Stanbic Bank, Access Bank) to other emerging brands like Sterling Bank. See their responses below.
Jerry Nnebue, Banking Analyst at CardinalStone Research
“Lower interest earnings (due to low yields and the slowdown in loan growth) and deterioration in asset quality are likely to pressure returns due to the pandemic. Prudential ratios could also be severely tested.
Nevertheless, we see opportunities in specific names due to depressed valuations and their ability to withstand the potential short-term pressures from the pandemic.
Notably, we favour GUARANTY, ZENITHBANK, and STANBIC on their stronger ROE potential and wider capital buffers over the regulatory minimum.
We are also optimistic about FBNH following the recapitalization of the commercial bank and the impact of years of loan book clean-up.”
Silas Ozoya, Managing Partner/CEO SUBA Capital
“Investing in Nigerian banking stocks would mean me looking at their performance over the last 5 to 10 years. In terms of innovation, stability, growth, the dividends declared, and market capitalization.
When you measure with those, a few banks would come to mind.
GTBank, Access Bank, Zenith would be my top three picks, then Sterling Bank would follow. Those guys have been doing some amazing product innovation that deuces sales for them.
Then finally, First Bank, because of its long time stability. It would function like the hedge in the portfolio.”
Yele Bademosi, CEO, Bundle.africa
“GTB because they still have a very strong brand reputation amongst millennials and Gen Z and they’ve shown a history of innovation with products like **737**, Habari, and Quick Credit.
Access Bank, the merger between Diamond and Access creates one of the largest banks in Nigeria, whilst the jury might still be out on the success of the merger.
I wouldn’t bet against the leadership team to make this a success.
Sterling Bank is my top pick because I think they have the largest potential for growth, they have a unique structure and clear focus areas that are centered around technology and innovation that I think could pay serious dividends in the future.
Their vision is bold and it’s going to be the execution that makes or breaks them.”
Darlington-Morsi Onyemaka, Co-founder Quba Exchange|Forbes Accelerator Cohort ’20
“Sterling Bank (STERL).
First of all, the Nigerian stock market is mostly suitable for long term investing, and as such, my investment criteria are leadership and innovation.
In the area of leadership, I’m very confident in Abubakar Suleiman’s leadership for Sterling Bank given his track record and age.
STERL also ticks the box of innovation with the introduction of its online bank (One Bank) which positions them to withstand and likely outperform emerging competitions in the online banking space.”
Omeiza Makoju, ACCA energy analyst
“In the last 6 months, the banking sector has been hard hit by the COVID-19 scourge, the “staggered devaluation” of the Naira, stringent regulations from the CBN, and the drop in oil prices.
As a value investor, my favourite banking stocks in no particular order are GTBank, Zenith Bank, UBA, and Access Bank.
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I choose these banks because they have strong fundamentals and metrics. They are all dividend-paying with yields above 10% and the P/B (MRQ) of Zenith, UBA, and Access Bank shows that they are currently undervalued.
At a time like this where the Naira/USD Exchange rate and the inflation rate is rising,
I have also chosen these stocks because they provide some form of inflation protection in the absence of USD instruments.”
Retail franchise investment next gold mine for Nigerian investors- CIG
Retail franchise investment curbs unemployment and create buffer for people looking for side hustle
The Choice International Group (CIG) has tasked both unemployed and employed Nigerians to embrace retail franchise investment, as the initiative would curb unemployment in the nation and create buffer for people looking for side hustle.
In line with a recent FBDS Study, there are over 450,000 Nigerian career professionals with minimum investible funds of N1 million, looking out for investment opportunities.
In the majority, these funds are looking for franchise type opportunities for ease of venturing and minimal failure risk.
As far as CIG chairperson, Diana Chen, is concerned, such investor should look no further but consider the group’s retail franchise investment opportunity, which offers Nigerian community mouth-watering offer of owning Gree & Lontor retail stores.
According to him, Gree is the world’s residential air-conditioner manufacturer, while Lontor provides high-quality, energy-saving and convenient rechargeable home appliances and lighting products for global consumers.
He said, “Both brands have been built by the CIG into a world-class electronic retail chain in Nigeria opening no less than 20 brand shops in Lagos and Oyo over the last 18 months.
“The sales performance of its existing stores in the country makes Gree & Lontor one of the most profitable businesses in Nigeria with yields of an average return on investment of 50% and above per annum.
“CIG is offering investors the opportunity to own any of six regional logistics centres, or any number of Gree & Lontor brand shops in viable locations across Nigeria.
“It is the decision of the company to open up these opportunities to the investing public through a Franchise Retail partnership.”
He added that the company has mapped out two investment models it says are simple, transparent, and hassle-free.
“The first model involves only six regional logistics centres located across the geopolitical zones in Nigeria.
“Whoever invests in this will require a capital outlay of $1 million, and become a mega distributor partner of the Gree & Lontor brand, and service a network of brand shops.
“The second investment model involves the Gree & Lontor brand shops – retail franchise stores that require an initial capital outlay of N20 million.
“The investor will secure a store size of 120-150sqm at any choice location, shopping mall, plazas, high streets and even residential neighbourhoods.”
What they are saying
Nigeria is a growth market for franchising and franchise development services.
Gbenga Ajayi, an Entrepreneurship analyst, said, “The retail industry comes second to the food industry among sectors with best franchising opportunities.
“As with other emerging markets, one of the challenges of franchising in Nigeria remains the strengthening of intellectual-property regimes so that franchise companies can transmit knowledge and franchise system concepts with the confidence that such know-how will be protected.
Where to invest N500,000 right now
Nairametrics interviewed financial experts on what assets they would invest in if they had N500, 000
Since a full economic recovery this year is off the table, Nairametrics interviewed some investment experts, entrepreneurs, and corporate heads, on the assets they would invest N500,000 in. The responses varied from buying gold to investing in mutual funds or starting a business.
The world economy is projected to fall by 4.4% in 2020, an upward guide from an earlier predicted rate of -4.9% made in June. The IMF projected that social distancing due to the COVID-19 pandemic will linger till 2021, but the transmission of the virus will plunge globally by the end of 2022.
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Temitope Busari, CFA
With fixed income yields at the current levels, my N500k in today’s market will go into a dividend-paying stock or alternative investments.
- Depending on whether or not I can afford to risk some capital and barring timing constraints, I would buy a stock that offers periodic cashflow in form of dividends.
- For alternative investments, I would explore high-yielding fixed deposits in the on-lending space.
Michael Nwakalor, Macroeconomist at CardinalStone Research
- The yields in the fixed income markets are currently on the low and producing negative real returns, the equities market provides a viable alternative to earn a total return above inflation.
- I like stocks in the banking sector, as a number of them remain undervalued by fundamental metrics. Several names are on the course to post near double-digit dividend returns by the year-end. A portfolio that includes the following counters – GUARANTY, STANBIC, ETI, FBNH, and ZENITH, should provide adequate exposure to the sector as well.
Adaobi Okonkwo, Currency Trader of a leading Tier 1 Bank
- With a few things to invest in, the most reliable investment that comes to mind is a mutual fund. The fixed income and money markets are currently experiencing a downturn; hence, investing in them could reduce my income spread.
- However, with a mutual fund, my portfolio of investment in the capital markets is determined by the fund managers with a decent return on investments certainly above the risk-free rate. Gold is a commodity that would yield a good ROI within a specified time frame if I wanted to invest by myself.
Silas OZOYA, President/CEO, SUBA Capital
Though quite a small capital, it might not do much if you want to play the long-term investment game. However, it can set the ball rolling.
- I would invest it in a high yield investment platform that pays at least 5% returns monthly to cover running costs.
- Put the money in a fixed deposit and leverage it as collateral to take a debt fund, with a 6 – 12 months moratorium from a commercial bank for a possible expansion of a profitable business. This way, you gain on the debt and still have your N500,000 intact.
Ugonna Thelma Ohiri-Anyanwu, CFA
With a gift of N500,000, my risk appetite and drive for higher returns,
- I would invest 50% of the funds (N250,000) on dollar and Eurobonds. This is mainly because of my future needs for FX and also as the need to hedge my currency risk.
- I would invest 25% of the balance (N125,000) in Ethereum, which would give me a steady cash flow with medium risk.
- The balance of N125,000 would be invested in Value company shares with low P/E and also stable dividend payments.
The overall investment portfolio allows for diversification, stable cash flow in both local and FX currency, and currency hedge. These would provide a solid mix between ownership of materially underpriced assets and high dividend-yielding assets.
Amid the rising COVID-19 caseloads prevailing globally, the financial experts interviewed above showed significant diversity on the assets they would invest in, coupled with their different appetite for taking risk reflected on their preferred choices made amid a blurry global economy era.
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