Best Banking Stocks to Buy Right Now In Nigerian – Learn The Best Stock Market Investing Strategies That Tells You Top Financial Stocks To Invest In
It’s not every time you will read my recommendations on popular stocks in Oil and Gas, Banking, Consumer, Healthcare sector, today I decided to share one unpopular and overlooked financial stock no one is talking about. The amazing thing is that, when I find unpopular top-performing stocks, I am always surprised because no one is talking about it on financial news websites in Nigeria.
Which stock are you talking about? My dear, it is one Micro-finance bank’s stock, the company is a niche stock that focuses on providing financial products and services, including retail banking, loans and advances, money market activities and financial advisory services to Nigerian police. I am talking about Nigerian Police Force Microfinance bank.
Let’s see what the stock’s performance had been: In the last 6 months, 3 months and 1 months, the stock is up by 84.35%, 69.6%, and 13.98% respectively. NPF Microfinance bank’s share is N2.02 and as this writing, I expect the price to go up.
What is responsible for this growth you may ask? Let’s take a quick look at the company’s financial statement on the quarterly basis to ascertain the fundamentals.
NPF Micro-finance bank recorded growth on key figures across the board; from Q1, Q2, Q3 to audited result, the stock grew its gross revenue, interest income, profit after tax, and EPS. Besides, all financial ratios like the cost to income, net interest margin, return on equity etc indicates that the financial stock is worth paying attention to.
You can also check this post to see my practical approach to analysing banking stocks including all the metrics that will help you pick the right stocks in the banking sector. All you need to do is plug in the figures from the company’s financial statement, available on the financial section of Nigerian stock exchange website and get a quick overview of the bank’s performance.
- For Q4, click here
- For Q3, click here
- For Q2, click here
- For Q1, click here
Using the Q4 result, let’s understand the core business of NPF Microfinance bank, how they get their money, and performance metrics like return on equity, net interest margin, efficiency, loan risk, EPS and expected growth rate.
The core business of NPF Microfinance bank:
NPF has a total asset value of N15.9bn, out of which N9bn was advanced to customers and N16m held as investment securities. Without further analysis, NPF Microfinance bank is a loan driven bank it relies more on credit to generate interest income more than investment in securities.
How NPF Microfinance bank get money
A bank can either generate more fund from customer deposit in which it pays interest on the savings or current account deposits or issues more debt securities to pay higher interest expenses otherwise known as the finance cost.
Take a look at the statement of financial positions, the bank has a total liabilities of N11.2bn, out of which N9.1bn is held as deposit liabilities, that’s like 82%. When a bank’s liabilities is more of customers’ deposit than debt, it translates to a lower interest expense compared to debt securities, this is called cheap money.
The N2.6bn interest earnings figure of NPF is largely driven by interest from loan and advances of N2.1bn which confirms our initial verdict that the bank is a credit bank. The rest is from placement with other local banks. But, I focus more on net interest income which grew to N2.2bn (N1.7bn in 2016).
The bank also recorded marginal increase in non-interest income as fees and commission earned expanded to N779m (N716m in 2016). Profit after tax also increased by 13% to N631m from N554m.
All these translate to nothing if the cash generated from operation doesn’t grow in line with the profit figure. NPF didn’t disappoint.
- Return on equity increased to 13.3% (12.4% in 2016)
- While other commercial banks are reporting a single-digit net interest margin, NPF posted an impressive double-digit margin of 25% (19.4% in2016).
- The efficiency ratio remains at the same level: 63.7% vs 63.5%
- Loan risk expanded from less than 1% to 2% as result of more than 100% increase in loss impairment.
- EPS also grew by 16.7% to 28k (24k in 2016)
Technically, NPF Microfinance bank stock price formation last week showed a rejection from the 20-SMA, a signal the continuation of a bullish trend. I have shared some technical indicators to explore when timing your entry in my book.
That’s all for now!
If you are still looking for a practical and detailed strategy to find stocks like this, the simple guide I shared in my book “My Little Secrets that Make Big Money” is all you need to become a professional stock picker.