Market Report

These lenders have the cheapest valuation


February 7, 2017 | 1:20 am
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Among Nigeria’s lenders, Diamond Bank Nigeria Plc and Skye Bank Nigeria Plc have the weakest price-to-book ratio, which measures the stock price against the value of assets minus liabilities.

Both banks have been seeking ways to boost capital buffers and profitability to reverse a slump in their shares, which has left them trading at less than what investors would expect to receive if the firms liquidated assets.

Diamond Bank and SkyeBank are trading at 0.092 and 0.067 times book value respectively. Arqaam Capital, a Middle East investment house, said in a report last year that the Skye Bank and Unity Bank are close to insolvency.

The Central Bank of Nigeria (CBN) suspended the board of directors and management team of Skye Bank in order to avert total collapse of the lender and prevent a repeat of the financial crisis of 2009.

The Nigerian lender announced last week that two of its executive directors have voluntarily resigned. While the details of the resignation are not made public, the resignation is suspected to be in connection with the ongoing restructuring by the Apex bank.

Because Skye Bank is one of the eight Banks described by the CBN as a Systematically Important Bank (SIB) on account of its size, market share and interconnectedness, its cheap valuation or assets makes it an attractive to foreign investors.

Some foreign banks have in the past tried to make a foray into the country’s financial system but jettisoned such strategic plans over disagreement on price. FirstRand, South Africa’s biggest bank walked away from buying Sterling Bank in 2011 because the asking price was too high. Analysts say lenders’ valuation could be weaker or putrid throughout 2017 if the macroeconomic environment remains unfavorable for companies and household.

“If we have a repeat of 2016 valuation will be weak. There P/B ratio looks ridiculous and people are worried,” said Saheed Bashir, head of research at Meristem Securities Limited.

“For valuation to be strong there has to be a solution to the foreign exchange crisis in order to ease liquidity.  Government fiscal policies such as the budgetary spend should be implemented expeditiously,” said Saheed.

GTBank is the only bank of 10 largest by assets that’s trading above book value. It has a PB ratio of 1.39 times book value.

Zenith, Access, UBA, and FBN are trading at 0.70, 0.45, and 0.45 respectively.

In the Tier 2 category, Stanbic IBTC Holdings Plc, Fidelity, Sterling and First City Monument Bank (FCMB) is trading at 1.25, 0.14, 0.27, and 0.14 times earnings. Nigeria is in a recession, the first in 25 years, stoked by a sharp drop in the price of oil since mid-2014 and a severe dollar shortage.

The woes have made it practically difficult for banks to raise capital while bad loans are troubled due to exposure to the oil and gas.

The stock valuation is the current value….. As long as the naira is under pressure, you continue to have such weakness, according to Bismarck Rewane CEO of Financial Derivative Company Limited.  “A strong balance sheet and good earnings should bolster valuation,” said Rewane.

The gap in valuation between the large cap stock and the low cap stock will continue to widen because the latter have more loan provisions and exposure to the gas. Diamond, Sterling, and Wema tumbled more than 40 percent last year as investors dumped stock and moved to a save heaven.

Analysts at CSL Stock Brokering Limited are of the view manufacturing, Oil and gas and general commerce sectors are vulnerable to a weak Nigerian economy and these sectors will default on loans in 2017.This means asset quality may further deteriorate.

“An aggregation of our worst case scenarios for the four sectors would imply that the equity of the tier 1 banks will be eroded by an average of 36% with FBNH being the most vulnerable while the equity of the three tier 2 banks covered in this report will be eroded,” said analysts at CSL. 



February 7, 2017 | 1:20 am
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