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Thursday, August 11, 2022

Bank Stocks to Rally into Year-end on Higher Yields

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Beaten down Nigerian bank stocks are set to rally in the second half of the year on prospects of higher yields spurring interest in banking names.

Based on expectations for an uptrend in fixed income yields in the second half of 2022, analysts envisage a significant pick up in banks’ net interest income.

“Our positive earnings expectation is premised on CBN’s switch to relatively hawkish stance, already demonstrated by the 150 bps increase in benchmark rate to 13.0%,” said analysts at investment firm Cardinal Stone Partners.

“Overall, we assess that the relative underperformance of banking names in the first half H1’22 could present attractive entry opportunities for investors over the next one year.”

Banking stocks appear materially undervalued relative to their historical performance and currently trade at an average price to book ratio of 0.5x.

Guaranty Trust Holding Company (GTCO) which is trading near a 52-week low of N20.80 per share, has the highest potential upside according to Cardinal Stone.

The GTCO stock could surge by 65.86% into year-end if it hits Cardinal Stone’s target price of N33.67 per share.

Average bond yields rose by 57 basis points in the second quarter of 2022, to provide ample rewards to investors who switched to a short-duration strategy.

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