Listed banks that are currently taking a hit from coronavirus effects as foreign investors exit have bright future prospects, with fund managers issuing a ‘buy’ rating based on impressive 2019 results.
On Monday for instance, Equity Bank Group, KCB Group, and Absa Kenya were among the biggest losers, with their share prices dropping 8.34, 7.64 and 7.27 per cent respectively.
Renaissance Capital and Cytonn Investment are asking investors to put their money in banking stocks, promising a return of not less than 45 per cent per share.
The Russian headquartered investment banking firm has for instance projected Cooperative Bank’s share value to surge Sh21.40 from Sh12.80 yesterday, implying an upside potential of 45 per cent. The projection is Sh4.40 above the lender’s highest value in the last one year.
It attributes the rise to the bank’s unexpectedly high-end year performance, bid to buy out Jamii Bora Bank with an asset value of Sh12.5 billion and a friendly market environment for the banking sector especially after the repeal of interest cap law in November last year.
The projection mirrors that of Securities Africa which gave Co-op Bank share price a 12-Month target Price of Sh22.30, which is a notable 48 per cent upside potential relative to the current price .
Cytonn Investment on other hand has projected the lender’s share value to rise to Sh 18.1, representing an upside of 49.8 per cent after the lender registered an after-tax profit growth of 12.6 per cent for the year under review.
‘’Coop Bank’s core earnings per share increased by 12.4 per cent to Sh2.4 in 2019, from Sh2.2 in the previous year, which was not in line with our projections of a 4.1 per cent increase.
According to Cytonn, the lender’s performance was driven by a 10.9 per cent increase in total operating income to Sh48.5 billion in 2019 from Sh43.7 billion in 2018, which outpaced the 8.2 per cent increase in total operating expenses.
Investors have also issued high future prospects on KCB, Equity Bank, Standard Chartered and Absa Kenya.
Both Renaissance Capital and Cytonn have projected the lender’s share capital to rise by to hit a target price of Sh64.2 from Sh37.45 yesterday especially on merger benefits.
During the year, KCB Group completed the take-over of National Bank of Kenya Limited by way of a share swap at a ratio of 10:1, 10 ordinary shares of NBK for 1 ordinary share of KCB. This saw the biggest lender by asset value in Kenya list an additional 142,979,717shares at the Nairobi Securities Exchange (NSE).
Equity Bank Group which reported a net profit growth of 14 per cent for the year ended December, 31, 2019 is expected to give investors a return of 52 per cent, from the current price of Sh35.70 as, inclusive of a dividend yield of 6.4 per cent.
Equity Group is currently trading at a price to a tangible book value of 1.4 times and a price to earnings of 6.5 times compared to an industry average of 1.2x and 6.3x, respectively.
Analysts are however worried about ongoing global market trends that have seen global stock exchanges taken a beating from the Covid-19 effects.
Listed banks have shed up to 25 per cent in value in the past three weeks, with NCBA Bank and Equity Bank falling to their lowest levels in a year yesterday.
NCBA Bank’s share which has been enjoying a bull run after CBA/NIC merger had shed 9.41 per cent I value to trade at Sh25.50 by noon, with no demand.
Equity Bank, on the other hand, had fallen to Sh33.05, 7.42 per cent drop compared to Monday, with very minimal activities at the counter.
‘’We may have not seen the worst at NSE. If Equity Bank falls below a book value of Sh29.60, it will be like a Mars sighting on a clear night sky,’’ financial market analyst Mihr Thakar tweeted.
Even so, Capital Markets Authority (CMA) acting CEO Wycliffe Shamiah has asked local investors to take advantage of the exit by some foreign investors from the market to buy undervalued shares of listed companies.
''Domestic institutional investors such as Pension Schemes, Collective Investment Schemes and Insurance Companies with a long-term investment horizon are encouraged to invest in blue-chip companies listed during this period subject to existing limits on asset class investments set out by their respective regulators,'' Shamiah said on Wednesday.