News Column

Q2 Results - Analysts Forecast Single Digit Growth for Banks

July 23, 2014

Eromosele Abiodun

As investors and stakeholders in the Nigerian capital market await second quarter results of banks, some analysts in the financial sector have predicted a single digit growth for some banks.

In a preview of Q2 2014 results, analysts at FBN Capital said they expect some banks to show significant quarter on quarte(q/q) growth in earnings. They particularly cited Skye Bank Plc and Fidelity Bank Plc, stressing, however, that these growth rates are to be affected by weak first quarter (Q1) results.

"Q1 2014 results showed that our universe of Nigerian banks reported an average Return on average equity (ROAE) of 17.7 per cent compared with full year 2013 ROAE of 18.5 per cent. We expect the banks to report a similar ROAE for full year 2014 as they did in 2013. As such, we believe Q2 will see slight improvements over Q1.

"Notwithstanding, we expect the market's reaction to be muted to slightly positive, given that our full year expectation for ROAE is flattish year on year(y/y)."

According to them, besides revenue growth, they believe an easing of operating expenditure(Opex) in Q2 for certain banks (United Bank for Africa for instance), will also help Q2 earnings growth.

"Q1 opex can be unusually high as we saw this year (over and above year-end effects such as AMCON levy, NDIC premium) because of over-accruing. With regards to their full year guidance, we expect the banks to reaffirm what they guided to after their Q4 2013 or Q1 2014 results. Loan growth is likely to be in the range of 15-20 per cent for most of our banks.

Even as concerns of a slowdown in H2 for loan growth increase, we believe lending opportunities are generally greater than they have been in the past such that banks will be able to meet their guidance, "they stated.

The analysts pointed out that so far, it appears that the recent change of guard at the central bank is unlikely to lead to a worsening regulatory environment.

They, however, stated that the changes put into motion by the previous governor are still being felt by the banks.

"As such, offsetting this positive outlook for risk asset growth is the continuing impact of these regulatory headwinds which will most likely be visible till at least 2016. Our preference going into the Q2 reporting season are those banks which have visible earnings momentum such as Access (rated outperform) and Stanbic IBTC Plc(rated neutral); and UBA Plc (rated outperform) on valuation grounds and the potential for putting its excess liquidity to work.

"Although we also like Diamond Bank Plc (rated outperform) and expect its Q2 results to be healthy, we would advise investors to wait until the rights issue is concluded towards the end of Q3 start of Q4 before entering the name," they added.

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Source: AllAfrica

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