People & Money

Ecobank Joins Fugaz Stocks To Continue Share Price Rally In 2022

Ecobank is Africa’s leading financial institution in terms of continent-wide footprint. The bank has witnessed significant improvement in its earnings and profitability due to the actions of its management to reinvent its business strategies and reposition the firm as a strong bank.

The NGX Banking Index had a mixed performance in 2021, returning 3.32% to investors. All sectors suffered struggled through the year due to low interest from foreign investors, higher inflation, uncertainty on the policy front, and slow economic growth.  Banking stocks however exceeded market expectations as they were driven by a recovery in banks’ corporate earnings, improved investor sentiment and a stronger outlook for the financial services industry.

As the stock market continued its upward trajectory into the third month of 2022, the NGX All Share Index (NGXASI) closed with a YTD performance of 11.05% on Monday, March 11th, 2022. The NGX Banking Index, which measures the performance of banking stocks, is also up 9.45% this year, providing opportunities for investors seeking short-term opportunities in banking stocks for profit-taking.

We have identified some of the banking stocks currently rallying on the floor of the Nigeria Exchange Limited (previously known as the Nigeria Stock Exchange) in 2022 by looking at the FUGAZ (First Bank, UBA, GTB, Access, and Zenith) banks, which account for over 70% of the NSE Banking sector index. Their performance strongly dictates the direction of the banking sector on the stock exchange.

Source: NGX, Arbiterz Research

ECOBANK TRANSNATIONAL INCORPORATED (NGX: ETI): With operations in 36 countries, Ecobank is Africa’s leading financial institution in terms of continent-wide footprint. The bank has witnessed significant improvement in its earnings and profitability due to the actions of its management to reinvent its business strategies and reposition the firm as a strong bank.

Last year, Ecobank (ETI) ranked second as the best-performing banking stock, with a share price return of 45% due to an increase in profitability and the announcement that the group secured a €100 million long-term credit facility from the European Investment Bank (EIB) to fund businesses affected by the covid-19 pandemic.

Ecobank began trading in 2022 with a share price of N8.70 and has since gained 35.6% in three months and 136% on year-on-year price increase. Furthermore, management efforts to reinvent the group’s business strategies are beginning to pay off, as evidenced by the Nigerian subsidiary’s unaudited 2021 full-year financial performance, which showed an 11% increase in revenue to N713 billion and a 324% increase in profitability to N143 billion year on year.

The group’s diverse business model, with an emphasis on trade finance, payments, demand deposits, lending, and advances, aided revenue growth. However,  profitability soared as a result of management’s excellent cost management, operational discipline, and ability to reduce staff costs and operating expenses. Since 2015, the bank has eliminated approximately 578 physical branches to better manage costs.

While the banking stock has not paid dividends to investors in many years, analysts are estimating that Ecobank management could make dividend payments this year due to much-improved performance. Although banking stocks, including Ecobank, have the potential for earnings growth this year, investors should exercise caution when seeking to invest in Ecobank because the stock may be better suited to those seeking capital gains rather than dividend payouts.

FBN HOLDINGS PLC (NGX: FBNH): FBN Holdings Plc is Nigeria’s largest holding company, engaged in the provision of commercial banking, investments, insurance, and other financial services. One of its subsidiaries is Nigeria’s oldest bank, “First Bank,” which is a member of the “FUGAZ”.

FBN Holdings Plc was the best-performing banking stock on the Nigerian bourse in 2021, outperforming other banking stocks trading on the same exchange with a 59.44% share price return. The remarkable share performance was led by an improvement in non-performing loan management, which lowered the percentage of non-performing loans from 24% in 2016 to around 7% in 2021. The perceived improvement in corporate governance as a result of the CBN’s replacement of the company board and the significant share acquisition by one of Nigeria’s high-profile businessmen, Femi Otedola, was also a factor in investors’ interest in FBNH stock last year.

FBN Holdings began trading this year at N11.40 per share and has subsequently risen 1.75% year to date, with the stock closing at N11.60 yesterday after market hours. So far, the company has provided investors with a 60% return on capital gains on a 1-year basis.  If you bought FBN Holdings shares on March 15, 2021, and held it until today, you would have made a 60% increase in price appreciation.

Although FBN Holdings has yet to publish its full-year financial results for 2021, the bank’s 2021 Q3 report fell short of expectations, with earnings after tax decreasing by 40% year on year. As investors await the release of the FBN Holdings 2021 full-year report, we predict that financial performance will drive the stock trajectory over the next few months.

UNITED BANK FOR AFRICA PLC (NGX: UBA): UBA is a prominent pan-African financial services group with operations in 20 African nations and overseas. The company provides banking, pensions funds custody, and other financial services to customers in retail, commercial, and corporate segments of the African market and it is a member of the “FUGAZ”.

UBA Plc was one of the worst-performing banking stocks on the Nigerian stock exchange in 2021, with a negative share price return of -20.8%. The loss in the company’s stock value was triggered by investors’ preference for FBN Holdings and Ecobank’s stock. This year, UBA began trading with a share price of N8.05 and has gained 8.07% in price appreciation over three months, now surpassing FBN Holdings following yesterday’s trading hours. On a year-over-year basis, if you purchased UBA stock on March 15, 2021, and held it until now, you would have gained a 20.8% increase in price appreciation.

The bank released its 2021 full-year financial performance last week, with impressive results exceeding N100 billion profit after tax. Due to a growth in customer deposits and bank loans to resilient areas of the economy, UBA increased its gross earnings by 7% year-on-year to N660.2 billion and profit after tax by 8.7% year-on-year to N119.0 billion. Unlike Ecobank, UBA is known for continuously delivering capital to shareholders through dividend payments and has paid an estimated N140 billion to its shareholders in the last five years.

Despite having strong fundamentals and regularly delivering value to shareholders, UBA’s share price consistently has lagged that of its rivals – Ecobank, First Bank, GTCo, and Zenith Bank. One of the reasons for this is that the bank is perceived as a “digital laggard”, slow to adopt the technologies that are seen as the future of banking.

Also Read: Ecobank Nigeria rewards four customers with Millions

In the most recent press release issued by UBA Management, Managing Director/CEO “Kennedy Uzoka” cited the bank’s ongoing Enterprise Transformation Program, which seeks to improve customer experience and service delivery by heavily investing in cutting-edge technology, cyber security, and innovative digital banking as a means of competing on a key measure of customer satisfaction.

We believe that this decision will help the bank’s profitability in the medium term and reposition the way investors see the brand in the market. Furthermore, UBA stocks are better suited to investors expecting steady dividend returns on their shares.

GUARANTY TRUST HOLDING (NGX: GTCO): Guaranty Trust Holding Firm Plc is a financial holding company with operations in West Africa, East Africa, and the United Kingdom. The Company provides commercial banking, personal banking, and business banking services. it is a member of the “FUGAZ”.

GTCo Plc, ranks as one of the worst-performing banking stocks on the Nigerian exchange in 2021, with a negative share price return of -19.63%. Furthermore, on one year period, the company’s stock has earned a negative return of -13.98 percent as investors priced the stock cheap due to predictions of failed earnings performance. This indicates that if you had purchased GTCO stock at the same time last year, you would have lost -13.98% of your investment. However, the stock began trading in 2022 at a share price of N26.00 and has since gained 2.69% on share price appreciation to close at N26.70 yesterday at the end of trading hours.

GTCo announced its 2021 full-year financial performance report earlier this month, with the Group showing a 7% year-on-year dip in Profit before tax to N221.5 billion. Similarly, earnings per share was N6.14, a 13.64% decrease from N7.11, while net interest income from its lending operations was N220.61 billion, a 13% decrease from the previous year’s performance. These results show that GTCo has been struggling to increase profits, despite a 14.30% increase in customer deposits to N4.01 trillion. This situation explains why GTCo stock hasn’t been on investors’ favorite list lately.

Despite these mixed results, Guaranty Trust Holding Co Plc’s management announced a final dividend payment of N2.70 kobo for each 50 kobo ordinary share for the fiscal year ended December 2021, bringing the total payout for the fiscal year to N3.00 kobo. We are optimistic that the recent addition of Pension Fund and Wealth Management businesses to the Group, as mentioned by Group CEO, Mr. Segun Agbaje, will contribute to an increase in the bottom line and produce additional revenue for GTCo businesses.

ACCESS BANK PLC (NGX: ACCESS): Access Bank is a diversified financial institution with subsidiaries in Sub-Saharan Africa, the United Kingdom, and the United Arab Emirates, as well as representative offices in China, Lebanon, and India. Access Bank became one of Africa’s major retail banks by retail customer base following its merger with Diamond Bank in March 2019, and it provides corporate, commercial, business, retail, and personal banking services. It is one of the “FUGAZ” members.

With a share price return of 10.06% in 2021, Access Bank Plc was one of the best-performing banking stocks, trailing only FBN Holdings and Ecobank. The bank’s shares have achieved a 32.3% return on price appreciation year-on-year. So, if you purchased Access Bank stock on the Nigerian exchange and held it until today, you would have made 32.3 % on your investment due to a surge in price.

Access Bank began trading this year with a share price of N9.30 and has gained 10.20 % in price appreciation over three months now outperforming Zenith, GTCo, and UBA after yesterday’s trading hours. However, Access Bank Plc is yet to release its full-year financial results for 2021. Its Q3 2021 financial results revealed a 17% increase in gross earnings to N693.1 billion and a 19% increase in profit after tax to N122 billion. These outstanding results were driven by an increase in net income, customer savings deposits, and bank loans.

When compared to UBA, Access Bank is known for its strong investments in technology, optimization of digital channels, and electronic banking systems, which was reflected in the growth of its Online and USSD Transaction Volume and Value of 54% and 37% respectively.

As investors await the release of Access Bank’s 2021 full-year report, we anticipate a positive result due to the bank’s proven robust business model, excellent risk management culture, and successful business strategy execution. We believe that the full-year performance results for 2021, as well as other macroeconomic developments, will determine the trajectory of Access bank stocks in the next months.

ZENITH BANK PLC (NGX: ZENITHBANK): Zenith Bank specialises in corporate and investment banking, commercial and consumer banking, trade services and foreign exchange, treasury and cash management, and other non-bank financial services. It is the largest Nigerian bank in terms of market capitalization and is represented by the final letter of the word “FUGAZ.”

Due to investors’ preference for FBN Holdings and Ecobank’s shares, Zenith Bank ranked among the less performing banking stocks last year, marginally topping GTCo and UBA with a share price return of 1.4% for the year. The stock has also generated a 24.1% return on price appreciation year-on-year. So, if you purchased the stock at this time last year and held it until today, you would have profited 24.1% due to a rise in market price.

Zenith began trading in 2022 with a share price of N25.15 and has already gained 7.36 % in three months on price appreciation.  Last month, the bank released its 2021 full-year financial statement, which showed that earnings after tax climbed by 6.07 % to N244.5 billion, the biggest performance on record for the bank. The improvement in outstanding profit performance was attributed to an increase in net income interest as well as trading income year on year. In addition, the bank boosted earnings per share (EPS) by 6% to N7.34 in the fiscal year 2021. This data shows that Zenith Bank has continuously increased its earnings per share year after year since 2016. The bank’s strong fundamentals, consistent dividend payment, high dividend yield, and potential for capital appreciation make it an attractive stock for short and long-term investors.

Zenith Bank has continued to develop rapidly over the years, exhibiting notable dynamism marked by speed and investment in digitalisation. Investors should continue to hold its stocks in their portfolios.

Disclaimer: Please note that this article should not be seen as a guide or recommendation for investment purposes. All contents have been curated based on the writer’s analysis and research on selected publicly traded Nigerian banking stocks.

Yunus Ibrahim

Yunus advocates for mission-driven, underrepresented founders, particularly women, first-generation entrepreneurs, and people of colour. With over 3 years of experience in Venture Capital, ESG, Corporate Finance, and Research, Yunus has gained insights into various markets in Sub-Saharan Africa and worked with diverse founders to build the prosperous African continent we all desire. He received a bachelor's degree in Accounting from the University of Lagos; and was 1 of 60 African scholars selected to study Technology, Entrepreneurship, and Design at the Nigerian University of Technology and Management (NUTM) on a full-ride scholarship.

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