Zenith, GTBank, and Access have been recommended by Renaissance Capital (Rencap) as three top picks for investors in The Nigerian Stock Exchange (NSE) given the stocks are highly marketable.
Rencap, the market leader in emerging markets investment banking and research, expect that the three stocks will outperform the market as their strong fundamentals will provide sufficient absorber in the event of any further foreign currency (FX) crisis in Africa’s biggest economy. GTBank is ranked 4th best stock in sub-Saharan Africa by Rencap; Access Bank is ranked 5th; Zenith Bank is ranked 6th.
In its research report christened ‘Sub-Saharan Africa Pockets of value’, which was released on Monday, Rencap said that GTBank has the strongest fundamentals in the Nigerian banking sector, as management had revealed a strong net FX position close to $270 billion ($860 million), a further earnings booster in the event of naira depreciation.
“We think the underlying performance of the business remains solid – with strong mobilisation of deposits and generation of fees and commissions. We think GTBank’s relatively more liquid balance sheet gives it some flexibility in a high interest rate environment,” Rencap said in the report.
“Of our top-pick banks, Access has a relatively stronger capital position. In the event that we see another 50% depreciation in the naira, we estimate that Access would be one of the only two of our top picks to have a capital adequacy ratio (CAR) above the regulatory minimum of 15% (this is before we factor in the impact of revaluation gains from a depreciation). We also think management has been proactive in risk management, and asset quality trends have been stable.”
The foremost emerging market investment bank also said that Zenith made the list of the top 6 stocks in the region on the back of low exposure to the most troubled sector in the Nigerian economy.
“Zenith’s asset quality trends have been among the most stable in our coverage universe. We also take some comfort in the fact that Zenith has the lowest exposure to the sectors we are most worried about in this challenging environment. Overall, we continue to think the fundamentals of the business remain strong,” the investment bank said.
The NSE-Banking index, which tracks the movement of bank stocks listed on the NSE, rose 2.18 per cent at the close of trading on Tuesday as bulls charged ceaselessly. Gains in Access Bank contributed to bolster the market. Investor gained N116.80 billion as market capitalization rose to N9.25trillion on the close of trading.
Rencapp said that Nigeria’s new investors’ and exporters’ (I&E) FX window recently introduced by the CBN allows trades at a market-determined rate.
“We see FX liquidity improving at this window, but it is likely to be slow-going, given that trades are on a non-electronic platform,” Rencap said
“While we think the recent improvement in FX liquidity is positive, we believe sustained FX restrictions will delay a meaningful recovery, particularly in the consumer and cement sectors.”
“We recommend the more liquid banks, including GTBank, Access and Zenith.”
INNOCENT UNAH
