Investors reward 2 names in Nigeria’s Banking with higher valuations compared to peers.
Source: Renaissance Capital
Guaranty Trust Bank ( and Stanbic IBTC are two standout names in Nigeria’s banking sector as investors push up their valuations compared to peers.
The two banks are trading above their tangible book value, a measure of what the companies would theoretically be worth if liquidated, with GTB at 1.4x and Stanbic at 1.3x (see chart).
The two banks are the largest and fourth largest by market capitalisation in Nigeria (excluding ETI with primary listing in Lome Togo).
The price to tangible book value ratio is closely watched by bank investors and analysts.
GTB has generally traded between 1.2x and 1.8x book value in the past 4 years while Stanbic’s valuation has soared with the lifting of regulatory overhang on the stock following the resolution of the financial reporting council (FRC) saga.
Both banks have reported Full Year, 2016 earnings.
GTB saw net income rise to N132.2 billion, while Stanbic’s net income rose by 50 percent to N28.5 billion from N18.89 billion in 2015.
The banks have also outperformed the broad market in the past one year, with GTB up 67.5 percent, Stanbic (+17.6%) and the NSE all share index (-1.76%), see chart.
Source: Bloomberg
Bank stocks have plunged amid a selloff that has erased some N2 trillion in market capitalisation from the Nigerian bourse since mid-2014.
A dollar shortage, rising bad loans and falling growth have combined to hit the banking sector, which is in the forefront of the economic crises, hard.
Our usual approach to bank valuations would be to see any stock trading above 1 times book value as expensive and those trading below book value as cheap.
With asset quality now the watch word and investors going for the most pristine of balance sheets we would not be surprised if more money piles into the two names, especially from offshore funds!
PATRICK ATUANYA
