Nigerian Stocks To Buy

Investors love banking stocks that beat the market index without getting ahead of its financials or risking sell-off on overvaluation. In this financial analysis, we looked at the new Access bank, short term chart analysis, and basic banking metrics to check if the recent financials support strong price growth.

What we’re looking for?

We will be looking at key areas like:

• Net Interest and Profit After Tax
• Efficiency
• Return on Equity
• Customers’ Deposit
• Book Value Per Share

In the bank’s recent result, Access bank reported a significant growth in net interest income to N53b (from N39.6b in the previous first comparable quarter). This was largely boosted by interest on investment securities which grew by 227%.

This growth at the top level, coupled with the net gain of N6b on foreign exchange transaction, were supportive of the 86% growth in profit after tax to N41b.

On the efficiency level, a key metric that tells how the bank is able to manage its operating expenses. Access bank efficiency ratio prints at 54.6%, down from 55.7%. While this is below the industry standard of 60%, the bank needs to cut a chunk of its operating expenses to rank at per with its peer.

Return on Equity, a measure of how the bank utilised shareholder’s fund, prints at 7.1% compared with 4.5% reported in the previous quarter. This represents a 57% growth Q on Q.

Customer deposit from the newly merged entity also grew by 35% to N4.6tr which is a form of cheap money (that comes with lower interest expenses) expected to generate higher earnings from an investment in fixed income market.

The customer deposit to liability ratio, a key measure of how the bank generates cheap money is 79%, a slight increase from 77% reported in Q1 2018. The significance of higher deposit/liability to a bank is that it tends to pay lower interest on savings/term deposit compared to interest on debt instruments like commercial paper, and Eurobond.

Since we can’t ascertain the full year’s earning with the first quarter result, it makes sense to use the net asset valuation approach to estimate the value of the bank’s stock. An asset-based approach identifies a company’s net assets by subtracting liabilities from assets. The asset-based valuation is often adjusted to calculate the net asset value of a company based on the market value of its assets and liabilities.

Continue reading “Is The New Access Bank Destined for Greatness?”

Among the three banks trading above N20 per share and have released their 2018 full year’s result, Stanbic IBTC bags the most impressive bottom line figure having recorded a significant increase in profit after tax and EPS to N74 billion (from N48b) and N7.04 (from N4.6), representing a high double-digit growth of 54% and 53% respectively. Not only is the bank doing a great job of maintaining its market share in its core investment banking business, and generating a better than expected non-interest revenue in a tough environment but also growing shareholders’ wealth.

The question now is, How is Stanbic IBTC able to grow her earnings faster? 

Let us look at the performance of the bank in the last 4 years, 2015 – 2018 period.

Source: Financial Statement 2015 and 2016

Source: Financial Statement 2017 and 2018

Revenue

The bank’s gross earnings grew from N140b in 2015 to N222b representing 12.22% average annual growth in 4 years. This is largely driven by non-interest revenue which went up by an average of 16.17% year on year (from N56b in the last 4 years to N102b).

Interest income is also growing by an average of 16.05%.

We know that banks make money by lending at a higher rate than what they pay to depositors. Banks collect interest (the money a borrower pays for the ability to use the bank’s money) on loans and pay interest (the money a bank pays depositors for allowing their money to be held). The difference between these two rates is known as net interest margin (or ‘the spread’) and is how traditional banks make money.

Stanbic IBTC net interest margin, a measure of the bank’s profit on its interest-generating assets, is still well above the industry standard of 4%, 8% (2015), 9.3% (2016), 11.9% (2017) and 9.2% (2018). Based on its 4 years of history, it has an average margin of 9.6%.

Continue reading “Is It Worth Buying Stanbic IBTC Despite Higher Prices?”

The price of Oando stock has been trending higher in the last 6 days, a bullish run with no recent corporate announcements. As of this analysis, the oil stock trade for N7.25, up by 9.85% in today’s trading session with YTD return now at 45%.

Let us look at the performance of the stock on a chart and analyse the trend of the stock for short term traders who might want to buy at the current market price.

On the chart above, I added the 50-day simple moving average (SMA) to gauge market sentiment towards the oil stock. Between November 2018 and December 2018, Oando stock was resisted at the 50-day line; each time the stock trend close to average, it turned bearish. (as indicated by A, B, C and D) But, notice how that same 50-day SMA rejection (which would have occurred at the region marked E ) was broken as the price went up through the resistance with a stronger run from N4.76 (and cross above the 200-day SMA) to N7.25, 52%.

Continue reading “Why Shares of Oando is Rising Amidst Huge Debt.”