Although the Nigerian Exchange Limited (NGX) Banking sector year-to-date performance has not been very impressive, the sector still possesses tremendous potential to record giant strides before the end of the year.
The NGX Banking Sector Index comprises 13 banks which are categorized into two classifications: Tier 1 and tier 2 banks. The tier-1 banks are popularly known by the acronym “FUGAZ” which stands for FBN Holdings, United Bank for Africa, Guaranty Trust Holding Company, Access Bank and Zenith Bank.
The tier-2 banks include FCMB, Fidelity Bank, Stanbic IBTC, Sterling Bank, Unity Bank, Ecobank transnational Incorporated, Wema Bank and Union bank.
The cheapest stocks listed on the NGX are selected based on their P/E Ratio. At Nairametrics, we consider a stock cheap when its P/E Ratio is less than 5. Of the 13 that form the banking sector index, only 8 fit that category.
Trustfund Pensions Limited
For better understanding of the price to earning (P/E) ratio concept, think of two banks or companies, A and B with a P/E ratio of 15 and 6 respectively. To get N1 from company A you have to pay N15; while to get N1 from company B, you only have to pay N6. Company B with a N6 P/E ratio is, therefore, cheaper than company A with a N15 P/E ratio.
Based on this analysis, the top 5 cheap stocks are listed below.
Unity Bank Plc
The bank has sustained an impressive performance as demonstrated in its full-year 2020 financial result where it recorded a Q1 2021 PAT of N721 million from N506 million, reflecting a 43% growth. In the same vein, Interest Income increased marginally by 1% to N9.67 billion at the end of the quarter.
The total assets of the bank for the period went up by 42% to close at N521.5 billion from N366.8 billion in the corresponding period of 2020. The bank grew its customer deposits by 13% to N348.3 billion from N308.8 billion recorded in the period under review.
Furthermore, Earnings per Share appreciated by 42.49% from N0.433 kobo to N0.617 kobo. The banks’ share price has depreciated by –7.81% from year to date.
The company has a P/E ratio of 1.98x and was trading at N0.59 as of the close of the stock market on Friday.
Fidelity Bank Plc
Fidelity bank has a market capitalization of N66.93 billion. Its Q1 2021, revealed a 7.74% increase in gross earnings, while net profit appreciated by 63.65% from N5.86 billion to N9.59 billion.
Its balance sheet revealed that the bank grew its total assets by 28.44% from N2.25 billion to N2.89 billion while the bank’s total deposits increased by 3.1% year-to-date from N1.70 billion to N1.75 billion.
The bank’s Earnings per Share increased by 65% from N0.20 kobo to N0.33 kobo and its P/E ratio stands at 2.30x.
Fidelity Bank’s share price has depreciated by –8.33% from year-to-date and was trading at N2.31 kobo at the time of writing this report.
Access Bank Plc
Access Bank Plc reported a growth of 28.39% in net profit for the first quarter of the year. Interest Income gained 10.73% from N113.75 billion to N125.97 billion in Q1 2021.
In the same period, bank customer deposits appreciated by 1.61% from N5.59 trillion to N5.68 trillion while total assets grew by 4.26% year-to-date from N8.68 trillion to N9.05 trillion.
Similarly, Earnings per Share went up by 23.14% from N1.21 to N1.49 in the current period. The bank has improved in its payout to shareholders over the years. It has a P/E ratio of 2.77x and was trading at N9.10 at the time of writing this report.
Access Bank’s share price has a Year-to-Date return of 7.69%.
FCMB Plc declared N3.6 billion Profit After Tax (PAT) in the first quarter of the year, to reflect a decline of 24% and similarly, gross earnings decreased by 12% to N43 billion from N49 billion.
However, the bank’s net assets grew by 0.09% from N227 billion to N229 billion while customer’s deposits grew by 4.76% from N1.26 trillion to N1.32 trillion from year-to-date.
The bank recently acquired a 60% stake in Aiico Pension Managers Ltd in a bid to synchronize the activities of its pension management subsidiary, FCMB Pensions Limited, to build a stronger and more resilient business. The company’s P/E ratio stands at 3.24x and it currently trades at N2.99.
The bank’s share price has a Year-to-date return of –10.21%.
Zenith Bank Plc
Zenith Bank Plc is currently the second-most capitalized bank listed on the Nigerian Exchange (NGX) with a market capitalization of over N783 billion and shares outstanding of 31.40 billion. In Q1 2021, the bank reported an increase In PAT of 5.02%, however, gross earnings declined by 5.7% from N166.81 billion to N157.31 billion.
Impressively, Net Assets grew by 18% in the same period from N926 billion to N1 trillion while customers’ deposits increased by 27.13% from N4.46 trillion to N5.67 trillion. The bank grew its total loans by 8.92% and Earnings per Share increased by 4.97% from N1.61 to N1.69.
Zenith Bank Plc has a P/E ratio of 3.36x and its share price is valued at N24.95 as of market close on Friday.
The bank’s share price has a Year-to-date return of 0.60%.
Fidelity, Access and Zenith Bank Plc are included in our SSN Newsletter Portfolio.
Why this matters
There are two reasons why people invest. The first is for capital appreciation and the second is for dividend returns.
As investors go bargain hunting, they hope to purchase more for less. This article helps investors understand that price is not the only determinant of cheap equity. Other banking stocks with P/E ratios less than 5 are:
Sterling Bank Plc
GT Holding Company