Gtbank is worth more to investors than other lenders
Bran Stark is a 38 year old football enthusiast who likes to wager on teams, and a lot times he wins because he is a good at permutations. One morning, he went to the sporty Bet office where someone told him he would get N50,000 extra if Manchester United won last weekend’s game or N30,000 if Manchester City triumphed.
He looked at the man seating directing opposite him and smiled drily. I will rather bet on Manchester City because there is no way the Etihad giants will not win,” said Stark.
Just as Bran Stark has put his money on the current English Premier League champions amid low returns, so are investors willing to take a lower return on investment (ROI) from Guaranty Trust Bank (Gtbank) than to take a higher returns from the rest of the banks.
This Gtbank has been consistently turning each Naira invested in revenue into higher profit since 2015, while it delivers higher returns to shareholders in form of bumper dividend and share price appreciation.
For instance, it has an equity risk premium of 7.75 percent, the lowest in among the five largest lenders, which means it is a less risky investment.it also means that Gtbank is worth more to investors than its peers assuming a give level of earnings.
Access Bank has an equity risk premium of 37.75 percent; Zenith Bank, 17.75 percent; United Bank for Africa (UBA), 23.75 percent, and First Bank Holding Plc, 14.01 percent.
Equity risk premium refers to the excess return that investing in the stock market provides over a risk-free rate. This excess return compensates investors for taking on the relatively higher risk of equity investing.
The risk-free rate of return is the theoretical rate of return of an investment with zero risk; for example government securities such as the 1 year, 2 year, 5, and 10 year treasury yields, are less risky compared to equities, which are susceptible to stock market gyrations.
Across the globe, during a stock market rout, investors pack their money to safe haven assets, but the global economy is grappling with negative interest rates.
Negative interest is a situation where government is being paid for borrowing; a situation that leaves investors with the option of investing in Gold.
Gtbank has an average return on equity (ROAE) and earnings per share of (EPS) of 33.60 percent and 6.60 percent, which means it is efficient in the deployment of shareholders’ resources in generating higher profit.
The lender’s earnings compares with Access’s ROAE of 23.90; UBA, 21.70; Zenith, 21.70, and FBHN, 11.60 percent.
While Gtbank’s total asset of N3.59 trillion is the third largest in the industry, its total market capitalization of N853.30 billion is the largest among peer rivals.
Stocks of Nigerian banks have seen their stocks beaten down since the start of the year as foreign investors dumped shares due to a flagging economy and lack of policy direction by the federal government.
The Nigerian Stock Exchange All Share Index (NSE/ASI) has shed -11.87 percent to close at 27698.69 points, while the Banking Industry Index has a negative year to date of -13.26 percent.
GDP of Africa’s largest economy expanded by 1.94 percent in the second quarter, according to the National Bureau of Statistics (NBS); that compares with 2.10 expansion in the first quarter.
While the cheapness of banks stock presupposes an entry point for investors, analysts say the macroeconomic headwinds will deter investors from taking advantage of such opportunities.
“When the economy is not growing, foreign investors will move asset to risk free market no matter how cheap banks stocks are,” said Kayode Tinuoye Fund Manager at United Capital Limited. The weak sentiment will continue to depress their share price”