By Odunewu Segun
As a result of the weak macroeconomic environment in the country, coupled with the decline in share prices, investors have shunned the equities of some banks listed on the Nigerian Stock Exchange.
For instance, Access Bank Plc’s stock price has so far declined by 13 per cent, year-to-date, from N4.85 per share as at January 4, to N4.20 per share as at last Friday, just as Zenith Bank Plc’s share price has dipped by 16.5 per cent year-to-date to close at N11.94 per share as at Friday, as against the N14.30 per share it was at the beginning of the year.
In the same vein, at N3.11 per share as at last Friday, United Bank for Africa Plc’s (UBA) share price, which appeared undervalued, has also depreciated by 7.4 per cent year-to-date, compared with the N3.36 per share it opened the year, just as Guaranty Trust Bank Plc and FBN Holdings, closed at N15.99 and N3.62 per share respectively.
Firms such as BNP Paribas, Brown Brothers Harriman/Stanbic Nominees, HSBC Funds Services London, JPM London, JPM Securities, Northern Trust London, State Street/Stanbic Nominees, the Bank of New York, were some of the investment banks that recently exited the Nigerian equities and fixed income securities market.
Meanwhile, Lagos-based CSL Stockbrokers Limited in an analyst report titled: “Search for Safety,” urged investors to attempt bottom-of-the-cycle investments in Nigerian banks, given that their valuations either are, or have recently been, at six-year lows.
“However, Nigerian banks must first negotiate, and survive, 2016. Our thesis about mean reversion will not hold very well if a given bank undergoes capital restructuring in the meantime. Therefore we are interested in the banks with the least risk of encountering problems this year.
“In terms of risk (and specifically each bank’s ability to absorb cost of risk) we set the benchmark high, as we explain in the next section. In terms of valuation, the potential stock price increase implied by mean reversion is far above the 20.6 per cent potential we see in naira depreciation this year (from N199.0/US$1 to N240.0/US$1), so it still makes sense to us to invest in selected Nigerian banks even if we are expecting devaluation,” the firm said..