A report from Bloomberg.com has indicated that foreign investor appetite for banking sector stocks in the country has increased due to low valuation and juicy entry positions.
The report states:
Lenders from London to Qatar are hunting for African banks to buy. No market is attracting more interest than Nigeria, where 35 million adults keep their cash at home.
“There are still massive opportunities when it comes to consumers, because lots of Nigerian banks haven’t even cracked the ice yet,” Adesoji Solanke, an analyst in Lagos for Moscow-basedRenaissance Capital, said by phone. Lending to those consumers “is where the low-hanging fruit is.”
Nigeria, boasting the continent’s largest population at about 170 million, has drawn investment fromBob Diamond’s Atlas Mara Co-Nvest Ltd. (ATMA) and Qatar National Bank QSC as economic growth in the West African country outstrips that of nations in eastern and southern Africa. Even so, valuations on banking assets are some of the cheapest on the continent as regulators force banks to reduce fees and increase capital.
“In West Africa, especially Nigeria, valuations have become ridiculously cheap versus the entire sub-Saharan Africa,” Kato Mukuru, head of equity research for Exotix Partners LLP, said by phone from New York. “With banks in Nigeria there’s more size, less penetration and a much richer government. If people aren’t careful, they’ll miss the boat.”
With profitability falling, the Nigerian Stock Exchange Banking 10 Index has dropped 16 percent this year. Fitch Ratings expects Nigerian banks’ “performance and growth” to slow more in 2015. Sixty-three percent of publicly traded Nigerian banks trade below their book value, John Storey, a Johannesburg-based analyst at Bank of America Corp., estimates.
Diamond’s Atlas
Nigerian banks have an average price-to-earnings ratio of 4.6. By comparison, the FTSE/NSE Kenya 15 Index has risen 20 percent, with Equity Bank Ltd., Kenya’s biggest lender by market value, climbing 58 percent on a PE ratio of 11.7.
Atlas Mara, founded by Diamond, former head of Barclays Plc, increased its stake in Union Bank of Nigeria Plc in September to almost 30 percent. In the same month, Qatar National Bank bought more than 20 percent of Togo-based Ecobank Transnational Inc. (ETI), which operates in Nigeria and another 35 African countries. Johannesburg-based Nedbank Group Ltd. (NED)took up 20 percent of Ecobank on Oct. 2. The bid premium on the first two deals was about 30 percent, Bank of America research shows.
“We consider a strong presence in Nigeria as a key pillar of our strategy,” John Vitalo, chief executive officer of Atlas Mara, said in e-mailed comments. “The robust projected GDP growth, the increasingly diversified economy, the ongoing emergence of a sizable middle class and numerous opportunities to enhance financial inclusion through the innovative use of technology are all long-term drivers of growth in the banking sector.”
Top Stocks
Guaranty Trust Bank Plc and Zenith Bank Plc (ZENITHBA) are Bank of America’s top stock picks in the country, while First Bank of Nigeria Plc and United Bank for Africa Plc are rated underperform. The four lenders account for more than 50 percent of Nigerian bank assets, according to Storey.
Even assets once considered toxic are finding takers. Nigeria’s Asset Management Corp., set up in 2010 to buy bad loans from lenders amid a banking crisis that began in 2009, sold Mainstreet Bank Ltd. to Skye Bank Plc (SKYEBANK) last month and Enterprise Bank Ltd. to a unit linked to Heritage Banking Co.