Why Fidelity Bank Is Still Cheap at N2.38
If you had bought Sterlings bank’s stock when I shared my analysis of the banking stock and how it was grossly undervalued at N1.61, your equity investment should be up by 47%. The stock, as of this update, now sells for N2.36. Such return in 3 months is hard to come by in Nigeria, not even CBN Treasury Bill, FGN Bond nor your local bank’s fixed deposit can give you double-digit return.
Another stock I had mentioned on this platform is Newrest ASL. I bought this stock at N4.95 and sold at 7 after the company notified the exchange of its voluntary exit, which translates to 41% return.
While we can’t assign 100% accuracy to our stock picks, we believe, from results, that you have a higher chance to make more money consistently, beat the market and build a passive income investing business if you master and stick to the stock trading strategy shared here.
How do you spot fasting rising penny stocks like this, you may ask? Well, I use the golden cross alert, one of my best short term trading strategies. You can click here for more details and how I use this strategy to pick profitable stocks to trade.
Two days ago, my online data platform alerted me on Fidelity bank’s stock, one of the top performing stocks that had just formed a golden crossover. The stock’s 50-day SMA is now 2.1 while its 200-day is 2.04, a perfect cross you need to watch out for.
Based on my 4 checklists for picking a profitable penny stock, let’s see the potential of Fidelity bank’s stock and why N2.38 is still a low price after 3-6 months rally.
- Golden Crossover – The stock, like I pointed out, had just formed a golden cross, which is why we picked it.
- Fundamentals of Fidelity Bank’s stock: Based on my guide on how I analysis banking stocks, we will look at key metrics as at Sept 2018:
- Gross earnings grew by 6.9%, from N130b in 2017 to N139b in 2018.
- Profit before tax increased significantly by 23.4%; from N16.2b in 2017 to N20.6b in 2018
- Profit after tax also followed as it expanded by 23.6%; from N14.4b in 2017 to N17.8b in 2018
- Earnings per share increased from 50k to 62k, a 24% increase.
- What is the estimated fair value of Fidelity bank’s stock? Based on its EPS (TTM) of 77k (Q3 EPS of 62k plus Q4 2017 EPS of 15k) and a risk-adjusted discount of 19%, we assign a fair value of N4.05 to the stock. The stock has 68% upside potential when you compare this value with its market price of N2.38. One of the rules of our fair value analysis is that it must be above the 50 and 200-day SMA to justify the expected rally.
Fidelity is one of the banks that is expanding its loan book, which as of this analysis is valued at N830b compared to N735b in Q3 2017. The bank is also investing in equity and debt instruments to the tune of N255b compared to N16 billion invested in the previous comparable period, that is 1493% increase in investment securities. No doubt, interest income from loan and advances and financial market securities will definitely outnumber FY 2017 result.
- How had the bank’s stock faired in the last 3 – 6 months? This is also an important point to look at. For a stock to be considered a potential pick, it must be gathering momentum for 3-6 months, at least sentiments should be positive. This will help eliminate stagnant or dead stocks. Fidelity is up by 23.7% and 28.34% in the last 3 and 6 months, so it makes sense to conclude that sentiments on this banking stock are positive.
Based on our analysis and fair value estimate, Fidelity Bank is a stock to buy but note that your due diligence is strongly advised.
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