Bear Run Unlocks Entry Opportunity in Banking Stocks

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Goddy Egene
The current low prices of banking stocks are providing entry opportunity for investors, capital market operators have said. Persistent bear run has driven the prices of most equities to record lows due to weak demand.

Although the weak demand stemmed from investors’ reaction to the poor financial performance of most companies as a result of challenging operating environment, operators said the banking sector would still do well at the end of the year.

They therefore said rather than staying away from banking stocks, they should capitalise on the current prices and increase their investment in the sector.

According to a stockbroker, Mr. Ayo Oguntayo, some of the banks are trading at very low prices despite recording impressive performance for the nine months ended.
He cited Union Bank of Nigeria Plc, FCMB Group Plc and Wema Bank Plc, that are trading 37 per cent, 38 per cent and 48 per cent respectively below their year’s opening prices despite posting improved bottom-lines in their nine months results.

“Even some of the banks that witnessed decline in profits for nine months still have the potential to improve on their performance at the end of the year. But investors are still discouraged to invest in banking stocks because of the headwinds. However, this is an opportunity for any discerning long-term investor to buy these stocks,” Oguntayo said.
Analysts at FSDH Research recently said Nigerian banks are trading at huge discounts relative to their emerging counterparts.

”Our analysis of the Nigerian banks listed on the floors of the NSE shows that they are trading at huge discount relative to their emerging market counterparts. We analysed 13 banks based on their latest audited financial results as at December 2015 and adjusted for half year, 2016. Our valuation results show that 10 banks have upside potential for equity investors. We placed a hold rating on one bank and sell ratings on two banks,” they said.

The experts said despite the recent challenges, there are huge banking opportunities in the Nigerian economy.

“Nigerian banks need to develop more constructive strategies to increase their share of the non-oil sector in their loan portfolios. We recognise that the current foreign exchange shortage in the country is a major problem facing the manufacturing and trading, sectors. However, lending to sectors that have local and export contents may be viable alternatives,” they said.

In their analysis of the banking sector, FSDH Research said as at December 2015, the total assets of the banking industry in Nigeria stood at N27.04 trillion, a decrease of 1.77 per cent from N27.53 trillion as at December 2014.

“The bank with the largest assets remains FBN Holdings with total assets of N4.17 trillion accounting for 15.41 per cent of the industry total assets. This was followed by Zenith Bank with total assets of N4.01 trillion and accounted for about 14.82 per cent of the industry size,” they said.