Cheapest Nigerian bank stocks based on their price multiples

Banking stocks ended the past week with a year-to-date loss of 4% a huge contrast to the Nigerian Exchange All Share Index which is currently up 16% in the same period.

While this is a concern for investors, it also provides an investing opportunity, especially for stocks that are trading at a perceived low valuation.

While valuation is not an exact science, investors typically rely on several metrics to easily determine the valuations of stocks. Two of the most prominent are price-to-earning and price-to-book value ratios respectively.

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The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).
The P/E ratio helps investors determine whether a stock is overvalued or undervalued. A high P/E could mean that a stock’s price is high relative to earnings and possibly overvalued. Conversely, a low P/E might indicate that the current stock price is low relative to earnings.
The price to book (P/B) ratio is used to compare a company’s market cap to its book value. This provides a comparison of share price to assets and liabilities rather than earnings, which can fluctuate more often, particularly through trading activities.
A P/B ratio above 1x means the stock is being valued at a premium to its net assets or equity book value, whereas a P/B ratio below 1 indicates the stock is being valued at a discount to equity book value.

Nairametrcs tracked about five Nigerian bank stocks with the lowest price-earnings (PE) ratios according to data compiled by Bloomberg. These banks include Unity Bank Plc, Access Bank Plc, UBA Plc, FCMB Plc and FBNH Plc.

FBNH Plc – 2.18x

FBN Holdings Plc during the period under review has a price-to-earnings ratio (P/E ratio) of 2.18x and 0.41x price-to-book (P/B) ratio. Since an above-one P/B ratio means the stock is being valued at a premium in the market to equity book value, whereas a below-one P/B ratio means the stock is being valued at a discount to equity book value. Hence, the stock valuation offers the bank one of the best opportunities in the value investing space.
First Bank Holdings closed trading on 14th with N10.20 per share and market capitalisation of N253.075 billion and EPS of 4.68.
FBN Holdings Plc posted gross earnings of N338.5 billion for its 2022 half-year results, representing a growth of 22.6% y-o-y from N276.1 billion reported in 2021.
In its unaudited half-year financials submitted to the Nigeria Exchange Limited, the Bank also made significant improvements across key performance indicators.
The result is on the back of an inflationary year, where businesses and their consumers have had to deal with rising cost of goods and services.
The group reported Net interest income of N152.9 billion, up 49.3% y-o-y from N102.4 billion in 2021 while Non-interest income stood at N108.8 billion, down 2.4% y-o-y from 111.5 billion in 2021.
It reported Profit before tax of N60.0 billion, up 40.0% y-o-y from N42.9 billion in 2021. Its profit Profit after tax stood at N53.3 billion, up 42.3% y-o-y from N37.4 billion posted in 2021.

FCMB Plc – 2.12x

Analysis showed that FCMB Plc has a price-to-earnings ratio (P/E ratio) of 2.12x and price to book (P/B) ratio of 0.25x. Since P/B ratio of less than one means that the stock is trading at less than its book value, or the stock is undervalued, therefore FCMB stock is a good buy.
FCMB with N63.962 billion in market capitalization traded last at N3.23 per share with EPS of 6.08.
FCMB Group Plc sustained its profitable growth trajectory by recording an impressive 85.17% increase in profit after tax for the half year ended June 30, 2022, a significant jump to N13.992 billion from the N7.556 billion recorded in the same period in 2021.
Also, profit before tax was up by 73.15% year-on-year to N15.428 billion from N8.910 billion in 2021.
The three-month results also showed a significant leap in gross revenue by 33% to N126.224 billion, from N94.228 billion for the same period last year.
The profit was boosted by interest and discount income with a growth of 34.97% Year-on-Year to N98.087 billion from N72.670 billion for the half year of 2021. In addition, fees and commissions rose to N22.068 billion in 2022 from N16.616 billion in 2021, a growth of 32.81%.
The FCMB Group Plc recorded a 42% increase in profit before tax, PBT, to N6 billion in the first quarter of 2022, from the N4.2 billion recorded in the same period in 2021.
Profit after tax was up by 45% to N5.2 billion from N3.6 billion in 2021 as impressive growth across all business lines supported this performance.

UBA Plc – 2.01x

UBA Plc a leading pan African Bank in the country has a price-to-earnings ratio (P/E ratio) of 2.01x and price to book (P/B) ratio of 0.33x which also offer the bank good investment opportunities as below-one P/B ratio means the stock is being valued at a discount to equity book value.
The bank last traded at N7.40 per share with market capitalisation of N253.075 billion and EPS of 3.68.
United Bank for Africa (UBA) Plc recorded N85.7 billion Profit Before Tax in its audited financial results for the first half of 2022, H1’21, a 12.6 per cent growth against N76.2 billion recorded in the same period of 2021.
The Bank also declared an interim dividend of 20 kobo per share for its existing shareholders.
The bank’s gross earnings hit N372.4billion, a 17.8 per cent growth against the N316 billion posted in the same period in 2021.
A further breakdown of the Bank’s half-year result, which was filed with the Nigerian Exchange Group(NGX), showed that total assets continued on an upward trajectory, increasing 5.4 per cent to about N9 trillion.

Access Holdings Plc – 1.96x

Access Holdings Plc, one of the Nigerian leading lenders price-to-earnings ratio (P/E ratio) of 1.96x and 0.30x price-to-book (P/B) ratio.
Price-to-book ratios below 1 are usually considered solid investments. A price-to-book less than 1 ratio could mean the stock is undervalued and worth buying. A price-to-book ratio greater than 1 indicates that the stock price is trading at a premium to the company’s book value. This means that Access Holdings stock is undervalued. These valuations offer the bank one of the best opportunities in the value investing space.
The group traded on the 14th at N8.95 per share with market capitalization of N318,129 billion and EPS of 4.58.
Access Holdings Plc’s Q1 2022 financial result revealed a profit of N57.40 billion in Q1 2022. This reflects a 9.23% increase year on year.
The group also reported earnings per share of N1.63, a 9.40% growth from the N1.49 reported a year earlier in Q1 2021. Access Bank Plc has grown its Q1 profits by 160% in 4 years since hitting N22 billion in Q1 2018 with the profit now touching roughly N57.40 billion.
The statement revealed that in Q1 2022, Net interest income declined by 7.03% from N93.96 billion to N87.36 billion in the current period. Access Holdings’ profit performance is on the back of margin growth as income from interest, foreign exchange gains and fees and commission income all appreciated year on year.

Unity Bank – 1.77x

Unity Bank Plc during the period under review has a price-to-earnings ratio (P/E ratio) of 1.77x and zero price-to-book (P/B) ratio. The negative P/B is negative due to a negative net asset value.
Unity Bank traded last on 14th September at 0.43 per share with market capitalization of N5.026 and Earnings Per Share (EPS) of 0.24.
Unity Bank Plc posted gross earnings of N27.6 billion for its 2022 half-year results, representing a growth of 17% year-on-year.
In its unaudited half-year financials submitted to the Nigeria Exchange Group Limited, the Bank also made significant improvements across key performance indicators.
The result is on the back of an inflationary year, where businesses and their consumers have had to deal with the rising cost of goods and services.
The Bank grew Profit Before Tax (PBT) by 23% which rose to N1.8 billion from N1.5 billion in the corresponding period of 2021. Profit After Tax (PAT) for the period equally increased by 23% to close at N1.6 billion from N1.382 billion in H1’21.
The key highlights of the financial statements showed growth in interest and similar income, which rose 18% to N23.938 billion from N20.273 billion in the corresponding period of 2021, an indication of sustained growth in the loan book as well as improved earnings from the lender’s robust digital channels, arising from sustained investment in its digital payment infrastructure.