FBN holdings (FBNH), Nigeria’s largest bank by assets, says its stock price should rally in the near future on the back of renewed buying by Pension Fund Administrators (PFAs).
“With the passage of the amended Pension Reform Act of 2014, we expect there will be some upside in our stock price,” said Oyewale Ariyibi, Head of Finance, FBN Holdings, in an interview with BusinessDay yesterday.
Nigeria’s N4.574 trillion ($25.4 billion) pension fund is one of the largest pools of capital available in the domestic economy, which can have an impact on equity values.
PenCom, the pension industry regulator had over a year ago stopped PFAs from buying bank holdcos, which affected three banks – FBNH, FCMB and Stanbic – IBTC.
Informed sources tell BusinessDay that PenCom took the decision because there was no Central Bank of Nigeria (CBN) framework for regulating the holdcos and they were not up to five years old, as stipulated in the Pension Reform Act 2004.
This has now been rectified with the release of the official gazette of the Pension Reform Act 2014, which removed the five-year dividend declaration and payment requirement for stocks eligible for PFA funds.
The CBN has also released the final version of the regulatory framework for bank holdcos.
“With the two pre-conditions now satisfied, all eyes are on PenCom to issue a circular lifting the prohibition to make it possible for PFAs to buy bank holdcos. This is very important, considering the attractive upside potential in FBNH and FCMB at the moment,” investment firm Renaissance Capital, said in a November 01 note.
The final restrictions by Pencom are expected to be removed by February 2015, according to Ariyibi.
FBNH’s stock price has lost -44.79 percent of its value, year to date, under-performing the -20.32 percent sell-off in the benchmark Nigerian Stock Exchange (NSE) – All Share Index (ASI), as investors dump bank stocks on the back of tighter monetary policy and the challenging macro environment.
Investors are missing the value in FBNH stock, as it has delivered 62 percent Compound Annual Growth Rate (CAGR) in dividend payouts since 2010, according to Ariyibi.
“Investing in FBNH is like being in a fixed income security with an equity upside,” Ariyibi said.
FBNH which closed trading at N9 per share on Wednesday has a market capitalisation of N293.6 billion ($1.6 billion) and sells at 0.6 times book value, compared to 1.94 times book for Guaranty Trust Bank, Nigeria’s most capitalized bank.
Pension assets in Africa’s largest economy have surged twelve-fold from N265 bn or about 1.4 percent of Gross Domestic Product (GDP) in 2006 to today’s level, equivalent to 4.8 percent of GDP.
Assets are currently growing at $2.5bn a year, or roughly 0.5 percent of GDP, per annum.
The share of equities in PFA portfolio is capped at 25 percent by the regulator PENCOM, while they are allowed to hold up to 70 percent in government fixed income securities.
Latest data from PenCom show PFAs are underweight equities with only 12.95 percent of assets allocated to domestic stocks as at October 2014.
FBNH will not see a spike in Non Performing Loans (NPLs) in 2015, even if GDP growth slows as a result of lower oil prices and uncertainty from naira devaluation, according to Ariyibi.
“We do not forsee worsening NPLs although there might be a reduction in margins,” “Aribiyi said. “For FX risks, we only extend dollar loans to firms with dollar income streams to avoid a mismatch.”
In March 2010, the CBN announced its plans to dismantle the universal banking model in Nigeria.
Banks like FBNH were allowed to maintain their non-bank subsidiaries, provided they adopt a holdco model and ring fence capital for subsidiaries operations from the core retail banking capital.
PATRICK ATUANYA
