‘Why investors should take advantage of low price of banking stocks’
Analysts have urged investors to take advantage of the current low prices of banking stocks and position for robust capital appreciation and dividend yield, insisting that the sector is financially healthy to withstand the shocks expected in the current year
The analysts admitted that the banking sector, which has over the years been the most liquid sector in the Nigerian equities market has come under significant headwinds in recent months.
However, they argued that the fact remains that a significant number of the banking stocks listed on the Nigerian Stock Exchange still have the potential to reward investors with weighty returns as they remain fundamentally sound and are financially healthy enough to withstand the shocks expected in the current year
Specifically, the Head of Research, FSL Securities, Victor Chiazor said: “The Banking sector which has over the years been the most liquid sector in the Nigerian equities market and a must-have for most investors in the equities market has come under significant headwinds in recent months.
“From the strict guidelines or circulars, which have come from its regulator – Central Bank of Nigeria – to the current systemic risk – covid-19 and the drop in the oil price – which has triggered a spate of sell-off in the market further affecting the banking sector.
“Despite negative sentiments, the fact remains that a significant number of the banking stocks listed on the Nigerian Stock Exchange still have the potential to reward investors with weighty returns as they remain fundamentally sound and are financially healthy enough to withstand the shocks expected in the current year.
“As of today, most of the banks are trading close to prices last seen in January 2016 during the period of FX volatility and economic recession and this current stock price presents a massive entry opportunity for investors with patient capital as the market will eventually recover.
“Market leaders among the tier one and tier two banks will continue to remain attractive at current market prices as dividend yield are now in the double digits as well as significant upside potentials in the medium to long term.
The Chief Research Officer of Investdata Consulting, Ambrose Omordion said they have been under sell pressure in recent times due to regulatory policies, but however insisted that the low stock prices of these banks pose a very good entry point for investors.
He noted that the Nigerian equities market is currently selling at a discount, noting that this offers high upside potentials and opportunities for investors to position for short to long-term capital appreciation.
He urged investors to target fundamentally sound and dividend-paying stocks, especially the banks for good dividend yield.
He said: “As we enter the second week of March, more audited earnings reports and dividend declarations will hit the market. This will dictate the market direction in the midst of profit-taking and repositioning by market players, as more maturing OMO and bonds mature, making more funds available for equity investment, even as we noted the fact that funds managers are holding cash.
“This is just as more liquidity flows to high dividend yield stocks with sound fundamentals, which will also be based on the seemingly positive outlook for the domestic economy, despite the mixed outlook for 2020 from various analysts.
He continued: “While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.
“We should, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a dividend yield of major banks continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.
“Again, the current undervalued state of the market offers investors opportunities to position for the short to long-term, which is why investors should target fundamentally sound and dividend-paying stocks for possible capital appreciation in the New Year.”
Another stockbroker, Charles Fakrogba, said the banking is a good sector to invest at any given time, considering the sectors’ past performance, especially in terms of dividend yield.
He pointed out that the headwind the sector is currently facing is temporal, noting that investors in the sector would smile at the end of the financial year.
“The numbers the banks have churned out so far is impressive. For instance, Zenith bank declared over 10 per cent yield while United Bank for Africa is still a good one because they have not marked down, they are yet to declare a dividend.
“The objective of any investor should be on a long term basis. Banking stocks are a good buy looking at the performance in the past. What is happening in the sector is temporal, any investor that invests now would have cause to smile.”
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