…Downgrades GTB & Stanbic
By Charles Ike-Okoh
THUR 28 JAN, 2021-theGBJournal- Analysts at EFG Hermes on Thursday upgraded their ratings on FBN (TP: NGN10.6) and UBA (NGN10.4) and Zenith (TP: NGN29.1) stocks to their equivalent of BUY from Neutral, saying their action is due to a decline in their risk charge forecasts and strong fee income growth for the former and strong non-Nigeria profit contribution for the latter.
‘’We upgrade our rating on Zenith to Buy (from Neutral; TP: NGN29.1) as we now expect a more resilient ROE outlook due to continued strong trading income and lower risk charge,’’ EFG Hermes said.
UBA’s upgrade is supported by the belief the bank’s earnings and ROE will remain relatively resilient due to increasing contributions from its non-Nigerian operations.
‘’Like FBNH, our conviction on our recommendation is low due to underlying concerns about the capital adequacy position of its Nigerian subsidiary.’’
Access Bank was upgraded to Neutral (TP: NGN9.7), from Sell, due to stronger-than-expected asset growth and lower risk charge.
The LT top pick in the sector, GTB, was downgraded to Neutral (TP: NGN33.2), due to declining leverage and macro / regulatory-induced headwinds to its ROE outlook.
While EFG Hermes estimates the bank will continue to remain the most profitable bank in Nigeria. it however forecast its base case ROE to gradually decline from 26.2% in FY20e to 21.9% by FY25e due to the poor macro and regulatory environment in Nigeria, as well as declining balance sheet leverage (we expect a FY25e assets to equity ratio of 5.0x, down from 5.7x in FY20e).
‘’We therefore think the bank is fully valued at 1.1x FY21 P/B.’’
Stanbic IBTC was also downgraded to Neutral (TP: NGN39.1) ‘’as we believe both its business units will come under regulatory pressure,’’ EFG Hermes analysts said.
EFG Hermes estimates its ROE will gradually decline from 27.6% in FY20e to 21.6% in FY25e due to potential non-recurrence of exceptional revenue (trading income) and regulatory pressure on both of its business units (Banking and Wealth Management).
‘’Therefore, we think the bank is fully valued at 1.1x FY21 P/B.’’