Small lenders set to out­per­form 2017 FY prof­its by al­most 40%

…con­trast­ing an­a­lysts’ views on stock rec­om­men­da­tion leave mar­ket per­plexed

Business Day (Nigeria) - - REAL SECTOR WATCH - IFEANYI JOHN

As an­a­lysts await earn­ings for the com­pa­nies in the Nige­rian eq­uity mar­ket, the promis­ing out­look of small lenders’ full year earn­ings in 2018 has failed to trans­late to a gen­eral sense of pos­i­tive rat­ings of Tier-ii banks by some in­vest­ment houses.

The coun­try’s small banks of­ten re­ferred as Tier- II banks have been grow­ing their loan books even as the big banks keep a tight lid on theirs. While the big banks, of­ten re­ferred to as Tier-i banks largely cut back on loans and ad­vances to cus­tomers in the first half of the 2018 due to fears of eco­nomic slow­down and po­lit­i­cal un­cer­tainty, small banks in­creased their loan ex­po­sure as the eco­nomic re­cov­ery nar­ra­tive res­onated more strongly among the smaller lenders.

“The small banks are tak­ing an ag­gres­sive ap­proach to lend­ing be­cause they need to grow their bal­ance sheet, while the big banks are hold­ing back and de-risk­ing their bal­ance sheet. The eco­nomic growth in the coun­try isn’t con­vinc­ing and we are strug­gling with height­ened po­lit­i­cal un­cer­tainty ahead of the 2019 pres­i­den­tial elec­tions,” said John­son Chukwu, CEO of as­set man­age­ment com­pany, Cowry As­sets.

The an­nu­al­ized prof­its of these com­pa­nies show that all small banks are set to out­per­form their 2017 per­for­mance by an av­er­age of 39.84 per­cent. The banks set to out­per­form by large mar­gins in­clude Ecobank (74.79%), Stan­bic IBTC (64.62%), FCMB (60.87%) and Wema Bank (55.75%).

The cu­mu­la­tive prof­its of TierII lenders are set to grow by 86.42 per­cent from N136.61 bil­lion in 2017 to N254.6 bil­lion by an­nu­al­iz­ing prof­its of the pe­riod ended as at the third quar­ter in 2018. Ecobank and Stan­bic IBTC hold­ings were the main con­trib­u­tors to the prof­its as they both con­trolled 71.14 per­cent of the to­tal prof­its of the 8 banks in re­view.

How­ever, this did not trans­late to con­sen­sus “BUY” rat­ings on smaller banks from Meris­tem Re­search, EUA In­tel­li­gence and Afrin­vest Re­search. FCMB, Fidelity Bank and Wema Bank had the most pos­i­tive con­sen­sus view of the three re­search firms in terms of po­ten­tial up­side go­ing for­ward. FCMB was rec­om­mended as a BUY from both Meris­tem and EUA In­tel­li­gence while Afrin­vest rec­om­mended its cus­tomers to hold on to the stock.

Meris­tem was bullish on the broad fi­nan­cial ser­vices sec­tor with BUY rat­ings on all bank­ing stocks which rep­re­sents the pos­i­tive out­look on earn­ings. How­ever, Afrin­vest and EUA In­tel­li­gence had only small banks as good in­vest­ment op­por­tu­ni­ties on their val­u­a­tion rec­om­men­da­tion. EUA In­tel­li­gence pre­ferred FCMB and Fidelity to all other small banks while Afrin­vest pre­ferred Ecobank and Wema bank.

Ster­ling Bank and Union bank are the only Tier II banks that started the year on a pos­i­tive note on the stock ex­change record­ing a pos­i­tive move­ment in share price -4.21 per­cent and 7.14 per­cent. Unity bank and FCMB have recorded year to date neg­a­tive re­turns of 14.95 per­cent and 10.05 per­cent re­spec­tively while other banks in this cat­e­gory have a year to date neg­a­tive av­er­age re­turn of -6.12 per­cent.

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