Nigerian banks make up 4 of 5 cheapest stocks in Africa with low P/E ratios
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Banks among companies with $500m valuations
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Lack of FX dispirits foreign investors
Recent data compiled by Bloomberg show that four of the five African stocks with the lowest price-earnings ratios among companies valued at $500 million or more are Nigerian banking institutions.
The low P/E ratio of these stocks shows they are some of the cheapest stocks on the continent and this is more evident in how foreign investors are being discouraged from the economy, owing to dollar shortage.
According to the Bloomberg data, United Bank for Africa (UBA), Access Bank, First Bank of Nigeria Holdings and Zenith Bank account for four of the five, while Johannesburg Stock Exchange’s listed and traded steelmaker, ArcelorMittal South Africa, completes the quintet.
According to market analysts, foreign and local investors in the local equities market have been able to make returns from buying higher-yielding stocks which are being sold by Nigeria’s federal government in a bid to fund its expanding deficit in its 2021 fiscal year budget.
However, efforts by the Central Bank of Nigeria (CBN) to halt dollar repatriation within the economy have become the biggest bugbear for foreigners. Hence, it is now a big reason for the depressed valuation of these stocks.
Meanwhile, the Bloomberg data posits that a regional average of the stocks price-to-earnings ratio stood at 13.0 percent on a 12-month P/E estimate.
The P/E ratio is the relationship between a company’s stock price and returns earnings per share (EPS) of the stocks. It is a popular ratio that gives investors a better sense of the value of the company as investors (local and foreign) want complete information on how profitable a firm is in the current season and how it will be in the future.
Consequently, United Bank for Africa’s price to earnings ratio prints at 1.9X, ArcelorMittal South Africa stands at 2.0X on a 12-month estimate, Access Bank ratio at 2.1X; First Bank Holding is 2.9X, while Zenith Bank is at 3.0X.
However, at the close of trading on Tuesday on the local equities market, the banking sector index tanked 0.4 percent on account of price depreciation in some of the banking stocks.