FSDH Bullish

Bear market: Zenith, GTB are two stocks to watch – FSDH

These two banks have achieved negative returns year to date, but market analysts are of the view that the stock are relatively trading below fair value.

Zenith stock closed at N17.20 on the last trading day in August while GTBank share was traded at N27.35.

Market data shows that Zenith has 25.38% negative return year to date, compare with GTBank 20.72% negative return for the same period. What that means is that, their individual share price has dropped to that extent.

FSDH review shows that the Nigerian equity market, as measured by The Nigerian Stock Exchange All Share Index (NSE ASI), depreciated by 12.42% as at the end of August 2019.

The firm analysis of the performance of the equity market so far in 2019 shows that the Index recorded the highest depreciation of 7.5% in July.

It noted that the declining crude oil price and fear of a possible global recession had negative impacts on the equity market.

“Despite the current bearish trend in the market, we spot opportunities in the equity market. The two stocks we highlight here are: Zenith Bank and GT Bank”, it stated.

According to FSDH, each of these banks has a history of good performance and good dividend payment; and as such analysts believe the short-to-medium term outlook of these stocks is good.

It said investors should position in them as their share prices have recently dropped significantly.

“Our analysis of the latest results shows that GT Bank is more efficient than Zenith Bank. Despite that, Zenith Bank is one of the most efficient banks in Nigeria.

“The efficiency ratio shows that Zenith Bank recorded the net interest margin 9%; profit before tax (PBT) margin 34%; profit after tax (PAT) margin 27%; Return on Equity (ROE) 11% (annualised to 22%) and cost–to–income ratio 53%.

However, GTBank recorded net interest margin 10%; PBT margin 52%; PAT margin 45%; ROE 16% (annualised to 32%) and cost–to–income ratio 37.6%.

FSDH Research revealed that by its estimates, the trailing earnings per share (EPS) for both banks stood at N6.39 as at first half of financial year 2019.

The Non-Performing Loan (NPL) ratio for Zenith Bank stood at 5.3% while that of GT Bank stood at 6.8% and they are among the lowest in the banking industry.

FSDH Research shows that Zenith Bank recorded improvements in both the top-line and bottom-line in the first half of 2019 over the corresponding period of last year.

Analysts said that the major drivers of the performance are an increase in non-interest income and its cost optimisation strategy. Although the gross earnings of GTBank dropped marginally, it managed to record improved performance in profitability.

“We attribute the drop in the gross earning to the decrease in interest income due to a drop in interest rate during the period. The growth in non-interest income and low interest expenses were mainly responsible for the growth in profitability.

Zenith Bank and GTBank have liquid balance sheets with well-diversified earning assets and sources of funding.

Zenith Bank’s total assets as at the end of first half in the year stood at N5.9 trillion while GT Bank’s total asset stood at N3.6 trillion.

Both banks’ assets are largely funded by customers’ deposits, with a strong capital base providing additional buffer for further growth.

Meanwhile, loans and advances, and investment in Treasury Bills constitute the bulk of the total assets.

While Zenith Bank may need to create an additional N484 billion in loan assets to enable it meet the new regulatory requirement of minimum loans to deposits ratio of 60%, GTBank may need to create additional loan assets of N178 billion.

FSDH Research recommends that investors with a long-term investment horizon take position in these two stocks at the current prices, which we believe offer significant upside potentials.

Although recent global developments may have a short-term negative impact on the performance of the equity market, long-term investors may benefit from the long-term growth that the equity market offers.

FSDH said: “The two companies usually give interim and final dividends; therefore, they are good stocks to be included in an asset manager’s portfolio.

“The performances of stock prices of Zenith Bank and GTBank have also outperformed that of the NSE ASI in the last five years”.

Bear market: Zenith, GTB are two stocks to watch – FSDH

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