Here is JP Morgan’s Analysis of Nigerian Banks. I will add some comments and notes later.
JPM Nigerian Banks Research Report (746)
Here are my comments and summary of the article:
- Believes that stocks in the banking sector are expensive on both an absolute basis and relative to emerging market peers. The believe that they are overvaluated up to about 56%.
- Recommended an Overweight (BUY) position in GTB, Neutral (HOLD) on Zenith, Union Bank, and Oceanic, and Underweight (SELL) on Intercontinental, UBA, and First Bank.
- Expect a return in the range of 27% for GTB to negative 40% for First Bank.
- Believe that the banks are sufficiently capitalised to support strong EPS growth.
- The continued vulnerability of smaller banks may pose systemic risks to the Nigerian banking system.
Are negative on the Nigerian banks for the following reasons:
- Valuations appeared stretched.
- Capital raising has been used to fund growth while internal growth capability is low.
- Continued intensification of competition.
- The risk of sharp increase in non-performing loans has increased as private sector credit increased 98% in 2007.
- Earnings growth visiblity is low.
- Growth has moved ahead of the risk capabilities of both the banks and regulator.
- Growth opportunity in the retail market may take longer to realise than the market is presently expecting.
- The stock market has been driven by a hot-house effect, movinig ahead of fundamentals.
- Bank prices do not sufficiently reflect the difficulties imposed by a lack of infrastructure, high levels of systemic risk as well as general economic and political risk.