Signs of a sharp recovery in bank earnings for the first quarter are drawing investors to Nigerian shares after several years of turbulence in local stock markets following a 2008 banking crisis that wiped 60 per cent off their value.
Africa’s second biggest index, according to Bloomberg news, soared to a seven-and-a-half-month high last week, passing the psychological hurdle of 21,000 points for the first time this year, driven largely by gains in the banking sector.
Banking stocks have started to perk up after a torrid 2011, which saw them fall 30 per cent, reversing an an earlier recovery, and underperform the overall index, which lost just 17 per cent.
Analysts say they still look inexpensive relative to their earnings and other sectors in the wider stock market, which leaves room for further growth.
“Nigerian banks are the cheapest… trading on 2012 forward P/E multiples of 5.2x,” said Soji Solanke, banking analyst at Renaissance Capital, adding that he expected them to outpace emerging market peers by a third this year.
Lenders in Africa’s top oil exporter are expected to bounce back in the first quarter of 2012, recovering from losses in 2011 that were caused by the writing down of bad loans left over from the 2008/9 banking crisis.
That crisis saw the Central Bank of Nigeria (CBN) bail out nine banks to the tune of $4 billion, but recovery since then has been rocky.
Diamond Bank, one of the first lenders to report first quarter earnings, set a positive tone with a three-fold increase in pre-tax profit, while United Bank for Africa (UBA) said its profits rose two-fold.
More first quarter earnings are due in the coming weeks, which if they are as good as they’re expected to be, could provide support for equities, analysts say.
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Banking recovery lures funds back to stocks