- Q2 earnings, Book value, Year Low Price Analysis
If investment in stocks is treated as normal transaction of buying and selling, the best for an investor at any point in time is an entry at relatively comfortable price, with the mindset for an exit at higher price level than the entry. At that, due considerations are needful at the entry and close monitoring in the process of holding the stock. These are essentials seeing that market trends and fundamentals do change and in most cases, in the opposite direction to performances of specific companies.
When a market losses its fundamentals in disregard to performances of listed companies, it behoves on the investors in such market to sell stocks and hold cash, hold on to existing positions, do fresh purchases or buy more of existing holdings. Such decisions as the case may be should not be frivolous but hinged on certain motivations which could vary from one investor to another.
It is noteworthy to categorically state the fact that equity selection process might not come easy as there are many metrics that could be deployed. The question remains how and when does a stock become cheap? Let’s take a look at just a few.
P/E RATIO:
Many times, a Cheap Stock could be easily be determined by a Low Price-to-Earnings Ratio but then, just like other metrics, there are limitations based on the cyclical nature of the companies involved but P/E Ratio is still largely considered as a back of the envelope analysis in finding a cheap stock. It sounds over simplified quite well but it remains true that the relationship between current price and earnings of a stock will largely remain relevant in the comparative analysis between one stock and another in same industry and between a year and another in same stock. Of course this is bound to change often and so should investors update the data base and keep tab on the changing figures to be well guided.
YEAR’ LOW/ HIGH PRICES AGAINST CURRENT PRICE:
Technically speaking, tracking high and low price levels of a stock might just tell a little about how cheap or expensive a stock has become. In most cases, these are the prices that often form the support and resistance levels. Support is that price level a stock price gets to and it refuses to decline below while resistance is the level a price gets to and it finds it difficult to climb further at an immediate period as these are often later broken.
Questions need be asked if a decline persist. If such decline is propelled by either realistic or expected poor performance from a company, it could be said to be justified but in cases where a company keeps releasing good reports while the price dwells at support level or its year low, it could be technically stated that such stock is cheap at that price though further confirmation might be required to initiate a purchase. In most cases, a year low could be further adjusted down depending on the elongation of market downtrend. A stock that is trending around its year low is however such that should be paid close attentions to particularly if the company fundamentals are sound enough.
BOOK VALUE AND PRICE-TO-BOOK VALUE RATIO:
A company’s book value is a figure calculated from the balance sheet of a company, it represents the net worth (assets – liabilities) of the company on per share. It is often referred to as shareholder’s equity. Book value tells of the relationship between the assets and liability of a company.
Book value analysis brings to fore the question on what does an investor really buy in a stock, could it be the name, assets or what? It is arguable because stocks are not being bought for a company to be stripped and investors share the proceeds but truth is that it should be more that what an investor should be interested in, in a stock is the assets the institution has been able to accumulate over years and much more, future possibilities in assets growth. Book value simply tells of per share accruals to a holder of one unit of a stock should all the companies assets be sold. It thus infers that at every point, it should interest investors what the book value per share of a company is, relative to its stock price on the stock exchange which is the making of the market. When book value is divided by the number of outstanding shares, we get the book value per share (BVPS)
In a situation therefore, where an equity’ price is lower than the company’s book value per share, such a stock could be considered cheap with higher possibilities of future price growth. This is not however to state that higher stock prices than book value should suggest a ‘no buy’ rating as that could suggest a level of confidence in the organisation going forward but even at that, such a stock could not be said to be cheap.
‘Though it tends to only happen in times of severe economic stress, it is possible for a corporation’s stock price to fall below book value, meaning the stockholder has a chance to buy into the firm for less than the accounting basis of the net assets. If things turn around, this can be a huge windfall, albeit one that takes years to manifest.’
In view of the foregoing, let’s take a quick look at a few stocks within the limit of space.
FBN HOLDINGS PLC
The big elephant beat market expectation with a fantastic Q2 earnings despite the lockdown caused by covid-19 pandemic. With Q2 earnings per share of N1.38 and the current share price of N5.00, a low P.E ratio of 3.60x implies that share price of FBNH is very cheap.
Year to date, the share price of the holding company has lost 18.7% and 36.1% from a year high of N7.85; at that, this implies an upside potential of 36.1% for FBNH relative to its year high.
Technically, Stochastic and William’s %R indicators pointed out that the stock is oversold which implies that it is trading well below its intrinsic value and has the potential for a price bounce.
Going by its book value of N19.62, relative to the current share price of N5.00, FBNH is considered very cheap.
ACCESS BANK
The market is anticipating Q2 earnings of Access Bank with the possibility of an interim dividend. Currently trading at N6.4, the share price of Access Bank has ranged between a high of N12 and a low of N5.30 in the last 52 weeks. Access Bank’s share price has lost 36% YtD and 46.67% from a year high of N12.
According Stochastic and William’s %R indicators, the share price of Access Bank is oversold, which implies that it is cheap relative to its current price.
On the basis of the bank’s 2020 Q1 earnings per share of N1.15, Access Bank’s book value at N17.88 and the P/E ratio standing at 5.56x, make the stock a bargain at the current price, more so its 2020 Q2 earnings is expected to hit the market any time soon.
UBA
The share price of UBA is currently trading at N6.5 and it has touched a high of 9.25 and a low of N4.40 in the last 52 weeks. Year to date the share price of UBA has lost 9.09% and 29.7% from a year high of N9.25.
The bank’s Q2 earning hopefully with an interim dividend payout is due. The result is expected to be good as the tier 1 bank has the capacity to weather the storm of covid-19 business disruptions.
With Q1 earnings per share of 88 kobo, relative to the current share price of N6.5, P/E ratio of UBA stands at 7.39x. With the book value at N17.91, relative to the current price of N6.5, UBA is considered cheap.
GUARANTY TRUST BANK
The share price of Guaranty Trust Bank has been on the uptrend since 3rd of August 2020 as it moved from N22.85 to close at N24.90 on Friday 14th, 2020.
Q2 result of the bank is expected to hit the market soon with a certainty of interim dividend payout. This will of necessity impact on the share price of the stock, moving it higher than the current price.
In the past 52 weeks, the share price of Guaranty Trust Bank ranged between a high of N34.4 and a low of N16.7. Year to date, the share price of GT Bank has lost 16.16% and 27.61% from a year high of N34.4. At that the share price of the GT Bank has potential to recover and could even hit a new high on the sentiment of interim dividend.
Although its Q1 earnings per share of N1.7 at a current share price of N24.90 gives a high P.E ratio of 14.64x. The book value of N22.46 as against the current share price of N24.90 might also make it appear not cheap, yet most indicators on the technical chart including MACD, Stochastic, William’s %R and RSI are all indicating BUY signal for Guaranty Trust Bank which suggest the stock is bullish at the moment.
ZENITH BANK
Q2 earnings of Zenith Bank will soon hit the market with anticipated interim dividend of at least 30 kobo.
Zenith Bank is currently trading at N16.7 and the price has touched a high of N23 and a low of N10.7 in the past 52 weeks. Year to date, Zenith Bank has lost 10.21% and 27.39% of its year high of N23. This suggests that Zenith Bank has potential to recover; and on the strength of anticipated interim dividend payout, the price is expected to climb up.
On the strength of its Q1 earnings of N1.61, Zenith Bank’s book value at N29.49 and P/E Ratio standing at 10.38, make the stock a bargain at current price as it could be said to be selling at 57% of its book value.
FCMB
First City Monument Bank grew it Q2 earnings to 49 kobo from 38 kobo. Relative to the share price of N2.02, low P/E ratio of 4.08x makes the stock cheap. Year to date, the stock has gained 9.2% and has lost 8.2% of its year high.
Book value of N10.83 relative to the current price of N2.02 makes the stock cheap.
Though MACD is giving a SELL signal on the stock, William’s % R and Stochastic maintains that the stock is oversold.
ECOBANK
Ecobank is currently trading at N4.05 and the share price has touched a high of N9.00 and a low of N3.90 in the last 52 weeks. Year to date Ecobank has lost 37.69% and 55% of its year high of N9. At N4.05 Ecobank has upside potential of 55% relative to its year high.
Q2 2020 earnings per share of N2.65 and the current share price of N4.05 gives a low P/E ratio of N1.53 which suggests that the price of the stock is cheap.
Book value of N40.48 relative to the current price of N4.05 makes the stock very cheap.
On the technical chart, William’s %R and Stochastics indicated that the stock is oversold, which implies that it is currently trading below its value, hence it is cheap.
AIICO INSURANCE
The Q2 earnings per share of AIICO Insurance for 2020 is 23 kobo. Relative to the current share price of 92 kobo, a low P/E ratio of 3.95 suggest that the stock is cheap at the current price. Year to date the share price of AIICO insurance has gained 27.78% from 72 kobo as at 31 December 2019 to 92 kobo as at 14 August 2020. In the past 52 weeks, the price of the stock has ranged between a high of N1.22 and a low of N0.61.
Though MACD is giving a SELL signal for the stock, however, William’s %R and Stochastic indicated the stock is oversold.
The book value of the underwriting firm at N2.79 and the current share price of 0.92 makes the stock cheap as it could be said to be selling at 32.97% of its book value.
PRESTIGE ASSURANCE
Prestige Assurance Plc’s proposed Rights Issue of 13,635,796,006 ordinary shares of 50 Kobo each at 50 Kobo per share on the basis of Thirty-eight (38) new ordinary shares for every Fifteen (15) ordinary shares held as at 31 January 2020. The share price is currently trading at 53 kobo.
Year to date the share price of prestige Assurance declined by 3.63% form 55 kobo as at 31 December 2019 to 53 kobo as at close of trade on Friday, 14 August 2020. Within the last 52 weeks, the share price of the stock has ranged between a high of 71 kobo and a low of 39 kobo. Relative to its year high of 71 kobo, Prestige Assurance has an upside potential of 25.35%.
Stochastic is giving a BUY signal, MACD is neutral, while Williams %R gave a sell signal.
On the strength of the Book value of N1.43, relative to the current price of 53 kobo makes the stock cheap.
NEM INSURANCE
The share price of NEM Insurance in the last 52 weeks has ranged between a high of N2.42 and a low of N1.44. Year to date, the share price has lost 27.73% from a year high of N2.42 at the close trade on 31 December 2019 to a current price of N1.87.
With Q2 earnings per share of 30 bobo at the current share price of N1.87, P/E ratio of 6.23 makes the stock cheap.
The underwriting firm’s book value of N2.81, relative to the current share price of N1.87 makes the stock cheap.
On the technical chart, a strong BUY is signal is recommended for NEM Insurance.
