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Tuesday, March 28, 2023

Value Investors Will Wager on These Bank Stocks

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If Benjamin Graham were still alive and a Nigerian investor, he would have wagered on Guaranty Trust Bank and Access Bank and Zenith Bank as they deliver higher returns on investment.

Benjamin Graham was an influential investor whose research in securities laid the groundwork for in-depth fundamental valuation used in stock analysis today by all market participants.

Graham, famous for his famous book “The Intelligent Investor, picked stocks with low price to book ratio because they trade below their intrinsic value.

Companies use the price-to-book ratio (P/B ratio) to compare a firm’s market capitalization to its book value. It’s calculated by dividing the company’s stock price per share by its book value per share (BVPS). An asset’s book value is equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation.

The legendary investor believed the ideal price to earnings (P/E) ratio should not be more than 15.x, and price to book ratio of 1.5x; and the Graham factor, which is the highest price that an investor should pay for particular stock, is normalized at a factor of 22.50.

It is worthy to note that Guaranty Trust Bank or GTBank has a price to book ratio of 1.04 times; Zenith Bank, 0.669, and Access Bank, 0.63 times, all meeting the Graham factor criteria.

Interestingly, their shares are attractive as GTB’s, Zenith Bank’s, and Access Bank’s price to earnings ratio of 4.18 times, 3.11 times, and 2.48 percent are below the NSE ASI average of 13.27 percent.

These lenders are like safe haven assets that protect investment in the times of economic downturn; aside from being value stocks that trades below their fundamentals such as dividend, sales, and earnings, they deliver higher returns to investors in the form of bumper dividends with deliciously attractive yields.

The owners of GTBank were given total dividend of N79.46 billion, and it has a dividend yield of 10.34 percent; Zenith Bank paid its shareholders N94.18 billion, while it has a yield of 12.99 percent; Access Bank declared N28.44 billion from distributable profit, which a yield of 9.82 percent.

Notably, investors will earn more for every share invested in these banks whose capital buffers to withstand macroeconomic headwinds.

These banks have the superlatives in the industry. Zenith Bank has net income of N53.13 billion as at March 2021, which is the largest in the industry; while GTBank is the most capitalized lender in Africa’s largest economy.

One thing about GTBank is that it is the only company whose market capitalization of N853.50 billion is lower than total assets of N5 trillion, which validates efficient use of resources to maximize the value of stakeholders.

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