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In the last sixteen years, Nigerians big banks have been making money for their shareholders more than any other sectors on the stock exchange as they remain even more lucrative given an attractive valuation which is an entry point for investors, according to a recent report by Chapel Hill Denham Limited.
Because banks have maintained earnings growth and solid capital levels which makes them impervious to macroeconomic headwinds, they have been able t0 pay bumper dividends to their owners. The steady or stable dividend policy underpinned investors’ confidence in their stocks.
Banks valuations are surprisingly cheaper than 2008 levels as United Bank for Africa (UBA) has a price to book ratio (P/B) of 3.3x and return on equity of (ROE) of 12.80 percent, that compares to the 0.60x and ROE of 22.30 percent it currently trades, according to Data compiled by Chapel Hill Denham.
Guaranty Trust Holdings Company (GTCO)’s P/B and ROE were 3.6x and 7.90 percent in 2008, that compares to the 1.0x and ROE of 46.70 percent it currently trades.
Zenith Bank’s P/B and ROE were 3.8x and 16 percent respectively, and that compares with 0.8x and 18.30 percent it currently trades.
Access Bank Corp, the most overvalued bank stocks in 2008, has a P/B of 14.30x and ROE of 21.40 percent, that compares to the 0.4x and ROE of 20.90 percent it currently trades.
“We believe that return of margin lending to the market for investors to participate in the stock market can also serve as a catalyst for re-rating, but this has to be combined with the right investors’ education,’’ said analysts at Chapel Hill Denham.
“Notably, the availability of margin lending was partly the driver of the market performance in 20028,” said analysts at Chapel Hill Denham
While lenders powered most of the rallies in 2008 driven largely by availability of margin lending, they have been the beneficiary of monetary policies that have been adding strength to their earnings.
For instance, the hike in interest rates and the devaluation of the Naira that spurred foreign exchange revaluation gains bolstered net interest income and profit.
Data gathered by MoneyCentral shows the combined net income or profit after fax (PAT) of listed lenders surged by 164.40 percent to N2.04 trillion as at September 2023.
That compares with 18.31 percent growth at the bottom line (profit) in 2022; 2021, (+1.02 percent); 2020, (+16.37 percent); 2019, (11.93 percent); 2018, (14.61 percent), and 2017, (18.19 percent).
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