October 18, 2021

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Nigerian banks’ stock cheaper than Ghana, Kenya — Report

Nigerian Banks’ stock values are cheaper when compared to Ghanaian and Kenyan bank stocks, stated the 2021 banking report by the Coronation Asset Management 2021.

The report is a 10-year study of the margins and profitability of six listed banks: Zenith Bank; GT Bank; Access Bank; FBN Holdings; UBA, and Stanbic IBTC.

Written by Ope Ani and Guy Czartoryski of Coronation Research, It examines what has happened within the Nigerian Banking industry in the last 10 years.

The report noted that in terms of valuations, and despite a significant rally in share prices over the past year, Nigerian bank stocks look remarkably cheap, both in relation to other Sub-Saharan African banks and in relation to their own valuation history. Five years ago the median prospective price-to-earnings (PE) ratio was around 5.0x. Now it is 2.5x. This downward shift in ratings has exposed meaningful value for today’s investors.

According to the report,  four of the banks’ shares changed very little over 10 years, but for Access Bank there is a significant market share gain and for FBN Holdings a remarkable shrinkage in its relative standing.

The report also showed that Nigerian banks’ earnings have been remarkably resilient over the interest rate cycle and their profitability is improving over time.

Czartoryski, a Senior Research Analyst at Coronation Research said: “These banks have adapted successfully to many changes in interest rates over the 10 years from 2010 to 2020. Therefore, they are well-positioned for the rise in rates in 2021.

“While underlying growth in assets has been elusive, especially when data are adjusted for inflation, profitability has generally improved. The return on average equity (RoAE) and return on average assets (RoAA) of the six banks studied have both converged and improved over 10 years.”

This trend appears to be under-appreciated by investors, and the report shows the positive investment potential in the sector” says Guy Czatoryski