At the close of trading on Thursday, July 6th, 2023, FBN Holdings Plc (FBNH) witnessed a remarkable milestone as its share price closed at N19 per share, reaching the highest level in over ten years.
Accompanying this surge was an impressive trading volume of 4.69 billion shares, valued at approximately N76 billion, by Honeywell Group – a Nigerian investment holding company.
This outstanding performance positioned FBNH as the second most traded stock on the Nigerian Stock Exchange within the past three months (from March 29, 2023, to July 6, 2023).
“The recent surge in FBN Holdings Plc’s share price reflects the positive sentiment surrounding the stock and the market as a whole. It demonstrates increased investor confidence and optimism,” says financial analyst John Okoye.
The significant trading activity has had a profound impact on FBNH’s year-to-date (YTD) gain, which currently stands at an impressive 74.3%. This surge in the share price represents a stark contrast to the previous year when FBNH experienced a YTD loss of 4.39% in 2022.
“As the banking sector continues to gain momentum, FBNH’s exceptional performance showcases its ability to capitalise on market reforms and deliver solid returns for investors,” remarks banking industry expert, Sarah Williams.
Williams’ sentiments are echoed in much more strategic proportions when one hears Honeywell Group’s Managing Director, Obafemi Otudeko, speak of the company’s investment philosophy.
In a letter from the MD to the Chairman of FBNH, published by Thisday on July 10, 2023, he said “Honeywell Group Limited (“HGL”) is a dedicated long-term investor committed to investing in great businesses with immense growth potential.
“Our approach involves working closely with stakeholders with a shared vision to foster the creation and enhancement of value for all.”
As FBN Holdings Plc’s share price experiences a continued upward trajectory, hitting a new 52-week high, the validity, and sustainability of the tinkle surrounding the stock come into question.
The recent surge in FBN Holdings Plc’s share price can be attributed to several factors, including improved investor sentiment driven by key economic reforms such as the unification of the exchange rate and the removal of fuel subsidies.
“These policy changes have had a positive impact on the equity market, instilling confidence and driving increased demand for stocks, including FBNH,” states economic analyst David Oladele.
These reforms have had a positive impact on the equity market as a whole, leading to a renewed sense of optimism.
This is evident in the NGX All Share Index, which is approaching levels last seen in 2008.
The banking sector, including FBNH, has experienced significant gains as a result of these market reforms.
“The market reforms, coupled with FBNH’s strong fundamentals, have propelled the bank’s share price to new heights. The positive market sentiment is a testament to the bank’s resilience and ability to adapt to a changing economic landscape,” says banking expert Amina Mohammed.
Apart from the market sentiment driven by policy changes, the upward trajectory of FBNH’s share price may have been influenced by the active buying of shares by one of its major shareholders.
“Major shareholders have shown confidence in FBNH’s growth prospects through their active buying of shares. This has sent a positive signal to the market, attracting more investors and driving the share price higher,” comments investment analyst Michael Adekunle.
However, it is crucial to assess the underlying fundamentals of FBNH to determine whether the share price rally is justified.
Examining the bank’s financial performance, FBNH has demonstrated a consistent gross earnings trend. In 2022, the bank achieved a 6.32% year-on-year growth in revenues, amounting to N805 billion.
This growth rate outperformed the bank’s five-year compounded annual growth rate of 6.12%.
FBNH experienced a decline in pre-tax income on a year-on-year basis, with a decrease of -5.4% in 2022, although there was a positive turnaround in Q1, indicating some recovery.
Furthermore, FBNH has made notable improvements in its asset quality. The non-performing loan ratio improved to 4.0% in Q1.
In 2022, the non-performing loan ratio stood at 4.3%, and in 2021, it was 6.1%. These improvements indicate FBNH’s efforts to manage credit risk and enhance the quality of its loan portfolio.
“The positive trends in FBNH’s financial performance indicate the bank’s commitment to sound risk management practices and efforts to strengthen its balance sheet. These factors contribute to investor confidence in the bank’s ability to deliver sustainable growth,” says financial analyst Cynthia Okafor.
The relative valuation and financial performance of FBN Holdings Plc (FBNH) provide further valuable insights for investors.
“The current valuation metrics suggest that FBNH’s shares may offer good value to investors. With a lower price-to-earnings ratio, price-to-sales ratio, and price-to-book ratio compared to its peers, FBNH may be considered undervalued,” states investment advisor Daniel Nwosu.
Comparing FBNH’s price-to-earnings (P/E) ratio to the peer average of 5.1x provides further context.
A lower P/E ratio relative to the industry average may indicate that FBNH’s shares are trading at a relatively lower multiple, potentially indicating undervaluation compared to its peers.
Furthermore, FBNH’s lower price-to-sales (P/S) ratio of 0.77x and price-to-book (P/B) ratio of 0.69x compared to Zenith Bank’s P/S ratio of 1.1x and P/B ratio of 0.75x may suggest that FBNH’s stock is relatively undervalued compared to Zenith Bank.
Investors seeking stocks with lower valuation multiples may find FBNH more attractive in terms of potential value.
“While FBNH’s valuation metrics indicate potential value, Zenith Bank’s higher P/S and P/B ratios may imply that the market has higher growth expectations for the company compared to FBNH.
“Investors who believe in Zenith Bank’s growth prospects may see it as a more favourable investment option,” explains investment strategist, Angela Okoli.
Regarding returns, FBNH has shown a significant year-to-date (YTD) gain of 74.3%, contrasting with the loss experienced in the previous year.
Analysts have set a 12-month price target of approximately N16 per share, indicating a forecasted YTD gain of about 47%. This positive outlook reflects the market’s expectations for FBNH’s future performance.
Additionally, FBNH reported a 42.86% increase in dividends in 2022 compared to the previous year.
Although EPS excluding extraordinary items declined by -10.20%, both dividends per share and EPS growth on a five-year annualised basis ranked in line with the industry average relative to its peers.
Analysts anticipate an 11.00% increase in dividends for the upcoming fiscal year, further highlighting positive expectations for FBNH’s dividend distribution.
All in all, the holding company has had a mixed performance, with the numbers showing glimpses of its potential given its size, geographic foot and technology footprint. “Considering these factors collectively, FBNH’s stock may offer value and growth potential for investors.
However, conducting comprehensive research, considering other fundamental factors, and assessing individual investment objectives and risk tolerance is crucial before making investment decisions,” concludes investment analyst Chika Obi.
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