Zenith Bank, GTCO top picks for Nigerian banking sector in 2024

Zenith Bank Plc and Guaranty Trust Holding Company (GTCO) Plc, two of Nigeria’s largest banks, are expected to outperform the broad stock market index in 2024, according to leading investment firm Cordros Securities.

In 2023, the Nigerian stock market defied expectations and experienced a robust rally, with investors reaping the benefits of a bullish run. Analysis showed that the market-friendly policies of President Bola Ahmed Tinubu were instrumental in this rally, which saw the Nigerian stock market outperform both global and African peers.

However, the central bank’s efforts to rein in inflation through interest rate hikes resulted in currency devaluation, which impacted the profitability of non-financial firms. Nevertheless, investors have continued to find opportunities in the Nigerian stock market, as the long-term outlook remains positive.

Cordros Securities remains optimistic about the prospects for continued gains in the Nigerian stock market in 2024. The company identified some of the biggest winners of 2023 as likely candidates for continued success in 2024. These stocks include companies that have consistently outperformed the market, notably Zenith Bank and Guaranty Trust Holding Company.

According to Cordros Securities analysts, Zenith Bank’s ability to maintain its earnings growth trajectory will be supported by several factors. Firstly, the elevated interest rates will continue to benefit the bank’s bottom line. Secondly, the bank’s strong balance sheet and capital adequacy ratio indicate that it has the capacity to drive business growth internally. Also, the bank’s transition to a holdco structure has the potential to drive growth in non-core income. These factors,the analysts argued, make Zenith Bank a strong investment opportunity with potential upside of 27.7 per cent.

Cordros Securities gave GTCO a rating of “buy,” citing several factors that could drive the stock’s performance. Firstly, the current environment of elevated interest rates is expected to boost the group’s income. Secondly, GTCO’s retail diversification strategy is expected to attract low-cost deposits, which should help the group maintain a competitive cost-to-income ratio.In addition, the group is considered a leader in cost management, which should help to maximize its profitability. All of these factors suggest that GTCO is well-positioned to outperform the market in the coming year

Zenith Bank and GTCO have delivered strong returns in the year to date, with year-to-date returns of 58.12 per cent and 75 per cent respectively. These returns significantly outperformed the NGX-ASI index, which returned 43.94 per cent over the same period. This strong performance demonstrates the appeal of these stocks to investors. Cordros expects this outperformance to continue in 2024, as the factors driving the stocks’ performance remain positive.

Nigerian banks have been the main drivers of earnings among the companies listed on the NGXASI 30 index. This is reflected in their attractive valuation of an average price-to-earnings (P/E) ratio of 3 times or 3x.

According to those familiar with the industry,Nigerian banks are an attractive option for investors seeking to maximise their earnings,  given their potential for future growth and the relatively low cost of entry. Cordros believes that the banks’ prospects are bright, and they represent an excellent opportunity for those looking to gain exposure to the Nigerian market.

While banks in Nigeria offer an attractive return on equity and dividend yield, it is important to note that the industry’s profitability may take a hit in 2024. This is because the foreign exchange revaluation gains that boosted the industry’s bottom line in recent years are not expected to be as pronounced in the coming year. Additionally, the devaluation of the currency is expected to slow, which will reduce the impact of currency revaluation on bank profits. Despite these headwinds, the long-term outlook for the industry remains positive, with opportunities for future growth.