Although the performance of the Nigerian Exchange Limited (NGX) banking sector since the start of the year has not been very impressive, the sector still has enormous potential for making giant strides before the end of the year.
The NGX banking sector index includes 13 banks classified into two categories: level 1 and level 2 banks. Level 1 banks are known by the acronym “FUGAZ” which stands for FBN Holdings, United Bank for Africa, Guaranty Trust Holding Company, Access Bank and Zenith Bank.
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 to be cheap when its P / E ratio is less than 5. Of the 13 that make up the banking sector index, only 8 fall into this category.
To better understand the concept of price / earnings (P / E) ratio, 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 P / E ratio N6 is therefore cheaper than company A with a P / E ratio N15.
Based on this analysis, the 5 cheapest stocks are listed below.
Unity Bank Plc
The bank maintained an impressive performance, as evidenced by its financial result for fiscal year 2020, where it recorded a T1 2021 PAT of N 721 million against N 506 million, reflecting a growth of 43%. Similarly, interest income edged up 1% to 9.67 billion naira at the end of the quarter.
The bank’s total assets for the period increased by 42% to close at 521.5 billion naira from 366.8 billion naira in the corresponding period of 2020. The bank increased its customer deposits by 13% to 348.3 billion naira against 308 naira. 8 billion recorded over the period under review.
In addition, earnings per share appreciated 42.49%, from 0.433 kobo to N0.617 kobo. The share price of banks has depreciated by â7.81% since the start of the year.
The company has a P / E ratio of 1.98x and was trading at 0.59 N at the stock market close on Friday.
Fidelity Bank Plc
Fidelity Bank has a market capitalization of 66.93 billion naira. Its first quarter of 2021 showed a 7.74% increase in gross profits, while net profit appreciated 63.65%, from 5.86 billion naira to 9.59 billion naira.
Its balance sheet found that the bank had increased its total assets by 28.44%, from 2.25 billion naira to 2.89 billion naira, while the bank’s total deposits increased by 3.1%. since the start of the year, from 1.70 billion naira to 1.75 billion naira.
The bank’s earnings per share rose 65% from 0.20 kobo to 0.33 kobo and its P / E ratio stands at 2.30x.
The Fidelity Bank share price has depreciated -8.33% year-to-date and was trading at 2.31 kobo at the time of writing.
Access Bank Plc
Access Bank Plc recorded 28.39% growth in net profit for the first quarter of the year. Interest income increased 10.73% from 113.75 billion naira to 125.97 billion naira in the first quarter of 2021.
During the same period, bank customer deposits appreciated 1.61%, from 5.59 trillion naira to 5.68 trillion naira, while total assets increased by 4.26%. since the start of the year, from 8.68 trillion naira to 9.05 trillion naira.
Likewise, earnings per share increased 23.14% from N 1.21 to N 1.49 during the current period. The bank has improved its payments to shareholders over the years. It has a P / E ratio of 2.77x and was trading at 9.10 N at the time of writing.
Access Bank’s share price has an annual return of 7.69%.
FCMB Plc reported N3.6 billion in after-tax profit (PAT) in the first quarter of the year, to reflect a 24% drop and similarly, gross profit fell 12% to N43 billion from N49 billion.
However, the bank’s net assets increased by 0.09%, from N227 billion to N229 billion, while customer deposits increased by 4.76%, from N1.26 trillion. to 1.3 trillion naira since the start of the year.
The bank recently acquired a 60% stake in Aiico Pension Managers Ltd with the aim of synchronizing the operations of its pension management subsidiary, FCMB Pensions Limited, in order to build a stronger and more resilient business. The company’s P / E ratio stands at 3.24x and it is currently trading at 2.99N.
The bank’s share price has yielded year-to-date of â10.21%.
Zenith Bank Plc
Zenith Bank Plc is currently the second most capitalized bank listed on the Nigerian Stock Exchange (NGX) with a market capitalization of over 783 billion naira and outstanding shares of 31.40 billion. In the first quarter of 2021, the bank announced an increase in PAT of 5.02%, however, gross profit fell 5.7% from 166.81 billion naira to 157.31 billion naira.
Impressively, net assets increased by 18% over the same period, from 926 billion naira to 1 trillion naira, while customer deposits increased by 27.13% from 4 , 46 billion naira to 5.67 billion naira. The bank increased its total loans by 8.92% and earnings per share increased 4.97% from N 1.61 to N 1.69.
Zenith Bank Plc has a P / E ratio of 3.36x and its share price is valued at N 24.95 at market close on Friday.
The bank’s stock price has a cumulative return of 0.60%.
Fidelity, Access and Zenith Bank Plc are included in our SSN newsletter portfolio.
Why it matters
There are two reasons people invest. The first is for capital appreciation and the second is for dividend yields.
As investors hunt for bargains, they hope to buy more for less. This article helps investors understand that price is not the only determinant of cheap stocks. The other bank stocks with P / E ratios lower than 5 are:
- Sterling Bank Plc
- FBNH Plc
- GT Holding Company