- How consistent are the earnings in five years?
- PEG Ratio Analysis
The market last week was bombarded with notifications of closed period by listed firms on NGX in preparation for the release of Q2 2021 earnings. As the market anticipates the Q2 results of these companies, smart investors are already taking position against their expectation. It is worthy to note that expectation is the mother of all investment strategies.
Most times, complicated analysis and compilations of ratios do speak volume but might not necessarily present the best of stocks for investment purposes. Of course, ratios will always present different angles of a company and its stocks quite well but might also complicate investment decisions because of the changing patterns of the components with which the ratios were arrived at and the decision to determining to precision, specific figures to act as lead. This is so because in most cases, while some ratios might appear negative, some might be looking brilliant so what should be done- to buy or not to then becomes an issue.
Over the ages, formulae had been deployed as research tools to pick good stocks but losses still abound even in firms with seeming appearance of best in research and information services.
We deem it necessary to do earnings forecast for banking stocks ahead the release of their Q2 earnings for 2021.
Our projections of Q2 earnings for banks is based on their PEG ratios. PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company’s expected growth. In other words, it is not enough for anyone to invest on just the strength of a company’s previous or latest earnings but these in addition to the expected earnings.
ACCESS BANK
Earnings history of Access Bank Plc for Q1 and Q2 for the past 5 years show that the bank has been consistent in improving on its earnings per share year on year.
Consistent growth is observed in the bank’s results within a financial year, Q1 to Q2. In other words, there was not a lower performance in a current quarter than the preceding quarter within a financial year. Although there was a marginal decline in the bank’s Q2’20 earnings per share by 1.15% to N1.72 from the EPS of N1.74.
Q2 earnings per share (EPS) of the Access Bank over the last 5 years has a Geometric Average Growth rate of 16%.
Relative to the current share price of N8.6 and Q2’20 earnings per share of N1.72, P.E ratio is estimated at 5x.
PEG ratio against the expected Q2 2021 earnings is 0.31 and it implies that the share price of Access Bank at current price is underpriced.
Q2 Earnings per share of about N2.03 is projected for Access Bank Plc. The bank is expected to pay at least an interim dividend of 25 kobo for Q2 2021.
ZENITH BANK
Zenith Bank has performed over the years with consistent growth in turnover, profit after tax and earnings per share especially with good dividend pay-out record. The Bank has been consistent with both interim and final dividend; and it is very sure they will pay 30 kobo interim dividend for half year 2021.
Earnings history of the Bank for Q1 and Q2 for the past 5 years show that the bank has been consistent in improving on its earnings per share year on year.
Consistent growth is observed in the bank’s results within a financial year, Q1 to Q2. In other words, there was not a lower performance in a current quarter than the preceding quarter within a financial year.
Q2 earnings per share (EPS) of the bank over the last 5 years has a geometric average growth rate of 30.82%.
At the current share price of N24 and Q2’20 earnings per share of N3.31, P.E ratio is calculated as 7.25x.
PEG ratio against the expected Q2 earnings is 0.24, which makes the share price of Zenith Bank underpriced at current price.
Q2 2021 earnings per share of N3.55 is projected for Zenith Bank.
GUARANTY TRUST HOLDINGS
The half year result will definitely come from the banking arm of the Holding Company, Guaranty Trust Bank.
Guaranty Trust bank in the last five years has shown consistent growth in Q2 profit after tax and earnings per share. The bank has been consistent with dividend payout of both interim and final.
Earnings history of the Bank for Q1 and Q2 for the past 5 years show that the Guaranty Trust Bank has been consistent growing its earnings per share.
Consistent growth is observed in the bank’s results within a financial year, Q1 to Q2. In other words, there was not a lower performance in a current quarter than the preceding quarter within a financial year. However in Q2’20, there was a drop in the bank’s earnings per share by 5.04% to N3.20 from the EPS of N3.37.
Q2 earnings per share (EPS) of the bank over the last 5 years has a geometric average growth rate of 7.01%.
Q2 earnings per share of N3.30 is projected for Guaranty Trust Bank.
FIRST BANK OF NIGERIA HOLDINGS (FBNH)
FBHN grew its Q2 2020 earnings per share by 56.82% to N1.38 from the EPS of N0.88 in Q2 2019.
Consistent growth is observed in the bank’s results within a financial year, Q1 to Q2. In other words, there was not a lower performance in a current quarter than the preceding quarter within a financial year.
Q2 earnings per share (EPS) of the bank over the last 5 years has a geometric average growth rate of 8.38%.
At the share price of N7.40 and Q2’20 earnings per share of N1.38, P.E ratio of the bank is calculated as 5.36x.
PEG ratio of 0.64, which is less than 1 implies that the share price of the bank is underpriced.
The EPS of N1.7 is projected for FBNH against its Q2 2021 earnings release.
UNITED BANK FOR AFRICA
UBA over the years has the record of consistent growth in its earnings per share; except for Q2’20 where there was a drop in the bank’s EPS by 21.69% to N1.30 from the EPS of N1.66.
Consistent growth is observed in the bank’s results within a financial year, Q1 to Q2.
Q2 earnings per share (EPS) of the bank over the last 5 years has a geometric average growth rate of 13.26%.
Relative to the current share price of N7.35 and Q2’20 earnings per share of N1.30, P.E ratio is evaluated as 5.65x.
PEG ratio against the expected Q2 earnings is 0.43, being less than 1 makes the share price of UBA underpriced at current price.
Q2 2021 earnings per share of about N1.70 is projected for UBA.
ECOBANK
There was a drop in the earnings per share of Ecobank in Q2’20 by 18.21% to N2.65 from the EPS of N3.24 in Q2’19.
Geometric average growth rate of the bank’s Q2 earnings per share over the last 5 years is 11.9%.
At the current share price of N5 and Q2’20 earnings per share of N2.65, P.E ratio of Ecobank is calculated as 1.89x.
PEG ratio against the expected Q2 earnings is 0.16, which makes the share price of Ecobank underpriced at current price of N5.
Q2 2021 earnings per share of about N2.80 is projected for Ecobank.
WEMA BANK
An in-depth study of the Wema Bank’s operation in the last ten years revealed that much has been done in rebranding, repositioning and refocusing even in the face of challenging economy and unstable policies that saw the bank at a time opting for a regional license before a subsequent upgrade.
The strength of the bank remains its foundation, visible repositioning in the previous years and the seamless succession.
Wema Bank maintained Q2 earnings per share at 3 kobo from 2015 till 2017. Then from 2018 to 2019, Q2 EPS of the bank grew by 28.84% and 43.21% to 4 kobo and 6 kobo respectively. EPS however in Q2’20 dropped to 4 kobo.
Relative to the current share price of N0.74 and Q2’20 earnings per share of N0.04, P.E ratio of the bank is calculated as 18.5x.
Q2 2021 earnings per share of Wema Bank is likely to be in the region of 5 kobo.
FCMB
Earning history of First City Monument Bank shows growth in the Banks Q1 and Q2 EPS from 2017 till date.
Q2 earnings per share (EPS) of the bank over the last 5 years has an average growth rate of 18.1%.
Relative to the current share price of N3.1 and Q2’20 earnings per share of N0.49, P.E ratio of the Bank is calculated as 6.33x.
PEG ratio against the expected Q2 earnings 0.35, which suggests that the current price could be considered cheap. A book value of N11.47 relative to the current price of N3.1 confirms that FCMB is cheap.
Q2 2021 earnings per share of N0.60 is projected for FCMB.
STANBIC IBTC
The earnings per share of Stanbic IBTC in Q1 2021 significantly declined by 45.28% to N0.87 from the EPS of N1.59.
Although Q2’20 earnings per share was up by 24.64% to N3.49 from the EPS of N2.80 in 2019; but based on the Q1 2021 result, there is likely going to be a drop in the bank’s Q2 earnings per share compared to last year achievement.
Q2 2021 earnings per share of N3 is projected for Stanbic IBTC.
