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Banks are vibrant stocks that investors should add to their portfolio as they will continue to benefit from the ongoing rally in the equity market following the announcement of several transformational policies by President Bola Tinubu.
This is contained in a latest report by research firm Afrinvest Securities Limited that was seen by MoneyCentral.
Analysts at Afrinvest Securities have wagered on: Zenith Bank, Access Bank, Guaranty Trust Holding Company (GTCO), United Bank for Africa (UBA) to deliver higher returns to shareholders in the form of share appreciation and bumper dividend.
Indeed, Tier 1 lenders’ shares have an attractive valuation because of their low price to earnings multiples and very high dividend yields, which gives investors an opportunity to invest their money.
Of course, these banks have a solid capital position, good asset quality, strong earnings that makes them impervious to macroeconomic headwinds.
FBN Holdings Plc, UBA, GTCO, Zenith Bank, and Access Bank saw their combined net income or profit after tax (PAT) spike by 29.30 percent to N301.45 billion as at March 2023 from N233.12 billion as at March 2022, according to data gathered by MoneyCentral.
GTCO has a trailing (P/E) price to earnings ratio 4.32x, and a year to date (YTD) of 21.09 percent, while it has a dividend yield (DY) of 10.99 percent.
Zenith Bank has a YTD return of (+16.67 percent); trailing P/E ratio, 3.79 x, and DY, 11.45 percent. Access Holdings has a YTD of 47.06 percent; trailing P/E ratio, 2.66x, and DY, 11.95 percent.
UBA has a YTD return of (+23.03 percent); trailing P/E ratio, 1.83x, and DY, 11.64 percent. FirstBank Holdings has YTD of 24.44 percent; trailing P/E ratio of 2.45x.
The NGX Banking Index has gained 25.40 percent so far this year, outperforming the NGXASI Index’s 9.34 percent return.
The stock market rally is due to president Bola Ahmed Tinubu’s announcement of market reforms such as the removal of subsidy on Premium Motor Spirits (PMS) and the unification of the foreign exchange market and some others.
If these policies are meticulously implemented, there will be an influx or inflow of foreign investors who had exited the country due to fear of being unable to repatriate their funds out of the country.
“For context, since 2015, the share of foreign investors’ participation in the domestic equity market has constantly declined, falling from 53.8 percent to 10.4 percent in February 2023,” said analysts at Afrinvest Securities.
“We estimate that improved liquidity in the FX market and market reflective pricing could drive foreign participation up to c.20.0 percent by year-end,” said the analysts.
Analysts at Afrinvest added that the increased foreign investors’ transactions amid sustained participation by domestic investors would be crucial to driving equity prices of undervalued fundamentally sound stocks closer to their intrinsic value.
“Consequently, we opine that there are several attendant opportunities in the equities market for investors to position for. To this end, we reinforce our investment recommendation for the year – investing across vibrant and defensive sectors (Banking and Telecommunication) and stocks with attractive dividend yields,” summed the analysts.