Despite a significant rally in their share prices in recent time, share prices of banks qouted on the Nigerian Stock Exchange are still cheaper than their peers in sub-Saharan Africa, a report on Nigerian banks has shown.
It states: “In terms of valuations, and despite a significant rally in share prices over the past year, Nigerian bank stocks look remarkably cheap, both in relation to other Sub-Saharan African banks and their own valuation history. Five years ago the median prospective price-to-earnings (PE) ratio was around 5.0x. Now it is 2.5x. This downward shift in ratings has exposed meaningful value for today’s investors, in our view.”
“While underlying growth in assets has been elusive, especially when data are adjusted for inflation, profitability has generally improved. The Return on Average Equity (RoAE) and Return on Average Assets (RoAA) of the six banks studied have both converged and improved over 10 years. This trend appears to be under-appreciated by investors, and the report shows the positive investment potential in the sector” says Czatoryski a Senior Research Analyst.
On interest rates, the survey expresses fears that “financial institutions that depend on short-term funding in the marketplace, and that have relied excessively on duration trades for their asset yields, could be facing problems this year.” It bases this on what it calls “precipitous fall in Naira-denominated market interest rates”, saying “last year saw a precipitous fall in Naira-denominated market interest rates, and this year is seeing them rise again. Last year saw 1-year T-bill rates fall from 5.40 per cent per annum in January to 0.15 per cent in early December. At this point, at the end of 2020, the Central Bank of Nigeria (CBN) effectively put a floor under rates by issuing Special Bills to banks at a rate of 0.5 per cent per annum.
– The Sun