Investment Opportunities in Banking Stocks

• Q2 earnings, Book Value, Year Low/High Price Analysis

The much anticipated half year 2021 results of banks awaiting regulatory approval were released to the market last week. This include UBA, Stanbic IBTC, Guaranty Trust Holding Company and Fidelity Bank.

UBA declared 20 kobo interim dividend as they achieved growth in their topline and bottom line figures. Fidelity Bank grew its top line and bottom line figures, though they did not declare interim dividend. Guaranty Trust Holdings declared 30 kobo interim dividend despite decline in their topline and bottom line figures. Stanbic IBTC also declared N1 interim dividend even though it declined in its top line and bottom line figures.

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.

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

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.

In view of the foregoing, let’s take a quick look at a few banking stocks with uptrend potentials.

ACCESS BANK

Access Bank in the Second Quarter of 2021 achieved year on year growth in its top line and bottom line figures compared to figures released in the first half of 2021. The Bank increased its interim dividend to 30 kobo from 25 kobo.

Currently trading at N9.20, Access Bank has a year high of N10.5 and a year low of N6.25. It is trading 12.38% away from its year high of N10.50.

With Q2 2021 earnings per share of N2.45, a low P.E ratio of 3.76x, earnings yield of 26.63% makes the stock very attractive.

With a Book Value of N21.82, relative to the current price of N9.20 shows that the stock is under-priced and therefore has uptrend potential.

FBNH

The share price of the big elephant is currently trading at N7.55 with a year high of N9 and a year low of N4.50. It is trading 16.11% away from its 52 weeks high of N9.

With Q2 2021 earnings per share of N1.06, the P.E ratio of FBNN stands at 7.12x with earnings yield of 14.04%.

Going by its Book Value of N21.51, relative to its current share price of N7.55, FBNH is considered very cheap.

UBA

United Bank for Africa released an impressive Q2 result to the market with growth in its top line and bottom line figures. The bank also paid an interim dividend of 20 kobo.

The share price of UBA is currently trading at N7.6 and it has touched a high of 9.80 and a low of N5.80 in the last 52 weeks. It is trading 22.45% away from its 52 weeks high of N9.80.

With Q2 2021 earnings per share of N1.77, a low P.E ratio of 4.29x and earnings yield of 23.29% implies great prospect for investors.  

With the Book Value of N22, relative to the current price of N7.60, UBA is considered cheap.

ZENITH BANK

Zenith Bank declared its usual 30 kobo interim dividend in half- year 2021. The share price of the financial giant is currently trading at N24 with a year high of N28.50 and N16.05.

It is trading 15.79% away from its 52 weeks high of N28.50, which suggest an uptrend potential for the share price of the bank.

With Q2 2021 earnings per share of N3.38, the P.E ratio of Zenith Bank stands at 7.10x with earnings yield of 14.08%.

Zenith Bank’s Book Value at N36.42 and P.E ratio standing at 7.10x, make the stock a bargain at current price as it could be said to be selling 34% away from its book value.

FIDELITY BANK

Fidelity Bank published a fantastic Q2 2021 result with growth in turnover and profit after tax. The earnings per share of the Bank increased by 70.80% to 67 kobo from 39 kobo reported the previous year.

Currently trading at N2.30, the share price of the bank with the last 52 weeks has touched a high of N3.10 and a low of N1.75. It is trading 25.81% away from its 52 weeks high of N3.10, which suggests an upside potential for the stock.

With Q2 2021 earnings per share of 67 kobo, a low P.E ratio of 3.45x and earnings yield of 28.97% makes it very attractive.  

With the Book Value of N9.43, relative to the current price of N2.3, Fidelity Bank is considered cheap.

FCMB

Although the Q2 2021 result of FCMB is not fantastic as there was decline in the bank’s top line and bottom line figures, yet there is uptrend potential of 24.81% in the share price of the stock relative to its 52 weeks high of N3.99. It is currently trading at N3.

With Q2 2021 earnings per share of 38 kobo, the P.E ratio of FCMB stands at 7.89x with earnings yield of 12.67%.

FCMB has a Book Value of N11.84; at that it is cheap, relative to its current price of N3.

WEMA BANK

Wema Bank performed impressively in its half- year 2021 result. Its Gross Earnings grew by 8.33% and Profit after tax grew by 148.61%.

It is currently trading at a year low 77 kobo, and has touched a high of 92 kobo within the last 52 weeks. At that, the share price of Wema Bank it trading 16.3% away from its year high of 92 kobo. This implies an uptrend potential for the share price of the bank.

With Q2 2021 earnings per share of 10 kobo, the P.E ratio of Wema Bank stands at 7.70x with earnings yield of 12.99%.

On the basis of its Book Value of N1.58, relative to its current share price of 77 kobo, Wema Bank is considered cheap as it is trading 51.27% away from its Book Value.