Zenith, UBA stocks, others remain undervalued

By Odunewu Segun

Posting appreciable profits in their half year results for 2017, investors still see some Nigerian top banks stocks as undervalued, and may likely take advantage  of these as the Nigerian Stock Exchange continue with its bullish run.

Most investors define an undervalued stock as a stock that is selling at a price significantly below what is assumed to be its intrinsic value. For example, if a stock is selling for N10, but it is worth N25 based on its intrinsic value, then it is considered an undervalued stock.

Zenith Bank topped the list of blue-chip companies whose share still remained undervalued. This year alone, at the Nigerian equity, the lenders’ stock gained 66.17%, outperforming the NSE ASI index.

The bank’s profit remained stable and sustainable since its Non-Performing Loan ratio is less than 5%,and a consistent earnings growth has earned it ‘Buy Rating’ from investment houses.

Zenith Bank’s dividend yield (DY) of 8.24 percent is higher than other tier one lenders’. However, the banks’ price to earnings multiples of 5.48x is lower than GTBANK’s 7.83x.

There are positive prognoses for this stock as it could be trading at 7.45x while shares could jump to N34 from N25 as of close of trading on Thursday, August 10, giving an upside potential of 36 percent.

UBA is another top flight bank whose stock has gained 110.89 percent since the start of the year, buoyed by consistent growth in earnings and a steady dividend policy.

Despite the favourable outlook and buy ratings by analysts based on the lender’s stellar performance, it is trading at a price to earnings multiple of 4.35x.

There are upside potentials for the stock as it could be trading at 5.35x earnings. At this valuation, it means UBA stock could be trading at N11.67 from N9.49 at current price, giving an upside potential of 23%.

 For Access Bank, it is clear that investors have been seeing value in this stock as its shares have gained 77.68%, outperforming the NSE ASI Index. It has a price to earnings ratio of 3.76x and a dividend yield of 6.23 percent.

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The stock could be trading at price a price to earnings ratio of 5.11x. This means stock price has the potential to move to N14.02 from N10.31 as at close of trading, giving an upside potential of 36 percent.

Fidelity Bank’s shares have gained 54.7g% since last year while its dividend yield stood at 10.77 percent.

The lender’s pre-tax profit grew by 20.54% to N4.84 billion in March 2017 compared to N4.0 billion the previous year; driven by the N0.5 billion growth in net interest income and N1.7 billion decline in total operating expenses.

Fidelity Bank stock is trading at a price to earnings ratio of 3.59x tough it could trade at 4.23x. This means share price could hit N1.53 from its current N1.30, giving an upside potential of 18 percent.