Banks: Consider Store Of Value In Q1– Coronation Research

Financial experts have advised that investors should look beyond the growth in earnings for each stock when assessing the performance of their bank stocks in the first quarter of the year.

In a report on the performance of banks under its coverage, released on Monday to its clients, Coronation Research says that focusing only on earnings growth will give a wrong valuation for its equities.

According to an analyst, Ope Ani, explained that in terms of returns, the banking sector, with its 7.4 per cent return in the quarter lagged the overall market index (24.3 per cent) and actually turned out to be the second-worst performing sector.

Also Read: NBS: Inflation Rises 16.82%, Exceeds IMF’s 2022 Projection

Such a dismal performance in the sector is not surprising, given the equally unimpressive performance of the component stocks, such as FBN Holdings (+4.8 per cent) and Access Holdings (+3.8 per cent) have recorded small gains, whereas “UBA has been flattish, while GT Holdco (-8.1per cent), Stanbic IBTC Holdings (-8.3 percent), Zenith Bank (-2.6 per cent) have fallen, the report noted.

Four of the five banks covered by the report announced earnings per share growth within the period, with the exception of GTCO, which reported an EPS decline.

According to Coronation, the view that the fundamentals of the banking sector are compelling has persisted, even as investor apathy around bank stocks remains.

“In our view, although bank margins and profitability have come down slightly in recent years, bank stocks have been oversold,” the report said. In such an oversold condition, it presupposes that the stocks have the chance of rising, sooner or later, from their current low prices.

“In an environment where negative inflation-adjusted yields remain the theme, bank dividends continue to offer more attractive yields than Treasury bills,” the report added.

“This report came as Nigeria’s headline inflation climbed to a five-month high of 16.82 per cent, according to figures released on Monday by the National Bureau of Statistics

Dividends paid by some of the banks covered in the report include N1 by Access Bank; N3.1 by Zenith Bank; N1.0 by UBA, and N3.0 by GTCO.

The report added that “In addition, with yields on the rise, we think FY 21 may have been the bottom in terms of banks’ profitability. The valuations of our coverage banks remain compelling and hold value for long-term investors, in our view”.