ARM Securities Bullish on Bulge Balance Sheet Banking Stocks
Equity analysts at Asset and Resources Management (ARM) Securities have remained bullish on bulge balance sheet banks as analysts rated their stock strong buy.
Also in the class of strong buy stock is Dangote Cement Plc (Ticker: DANGCEM) with fair value estimate of N219.77.
DANGCEM’s second quarter (Q2) 20 performance show that the group recorded +11% year on year growth in earnings per share (EPS) to N3.85.
ARM stated that this feat surpassed its expectations, with a solid performance from the top line, thanks to resilience in both its Nigerian and Pan African businesses.
“It remains our best pick in the cement sector given its strong fundamentals with superior margins and ROE, relative to peers”, ARM Securities stated.
Furthermore, analysts explained that the planned share buyback gives further boost to the company’s fundamentals.
GTB Plc stock is rated strong buy with fair value estimate at N37.00 kobo.
Explaining its choice, ARM Securities stated that amid heightened regulatory overhang, impact of covid-19 pandemic on economic activities and lower oil price, analysts like GTB given its impressive cost to income ratio (CIR) relative to peers as well as proven strategies.
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Also, with a capital adequacy ratio (CAR) of 22.5%; on a stress test, GTB would still be in a good position assuming cost or risk (CoR) goes as high as 10% compare to 0.3% in 2019.
“We also see GTB’s plan of a Holdco as positive given that the current CEO (Segun Agbaje) would retain the helm of affairs thus ensuring a continuation of growth strategy in the group”, analysts stated.
Also, analysts said GTB possible moves into the asset management business and payments services sector would offer a diversification away from the heightened regulations in core banking.
Also in the rank of strong buy is Zenith Bank Plc with fair value estimate at N28.0.
Despite pressures surrounding the banking sector, ARM Securities said it however see some level of comfort particularly with Zenith bank given its capacity to withstand the pressures relative to other banks.
Specifically, with a CAR of 20%, Zenith bank has more room to absorb severe economic distraught, analysts explained.
To buttress, with cost of risk at 10%, CAR would print at about 16%, higher than the minimum requirement of 15%.
In addition, Zenith bank has better operating efficiency relative to other banks, which should help provide support in a time of pressured earnings.
As a matter of fact, ARM Securities expects cost to income ratio to moderate by 2.5 percentage points (ppts) to 44.0%.
Elsewhere, Zenith bank net long dollar position of $1.7 billion puts it in a comfortable position to record FX revaluation gain this year.
ARM also rated UBA Plc a strong buy with fair value estimate at N8.5.
“While we expect pressures from the covid-19 (lower interest income and higher loan loss provisioning), we believe UBA has the capacity to scale through given its adequate buffers”, analysts stated.
Firstly, given its relatively high CAR which settled at 23.4%, UBA has more room to accommodate higher than expected loan loss provisioning/write offs.
ARM Securities said it also expects UBA to record some revaluation gain given its net long dollar position of about $200 million.
Other banking stock with strong buy rating include Access and FBN Holdings Plc with fair value estimate N7.93 and N7.00 respectively.
ARM Securities Bullish on Bulge Balance Sheet Banking Stocks
