Analyst Advises Investors to Pay Attention to Tier-2 Banking Stocks

By Dipo Olowookere

A capital market analyst has advised investors to pay attention to tier-2 banking stocks on the Nigerian Exchange (NGX) Limited not because they are cheaper but because they could spring up surprises this year.

Speaking on Monday on one of Channels Television programmes, Business Morning, which was monitored by Business Post, Mr Joshua Odebisi, the SSA Banks Research Analyst at Vetiva Capital Management Limited, said the financial institutions in this category have the potential to give more value to shareholders.

In the Nigerian banking industry, the likes of Fidelity Bank, FCMB, Wema Bank, Sterling Bank, Union Bank, Stanbic IBTC Bank, and Ecobank Nigeria are in the mid-level category.

At the stock market, the shares of the aforementioned lenders are not bellwethers like the tier-1 banks such as Zenith Bank, Access Holdings GTCO, UBA, and FBN Holdings (First Bank), all collectively known as ZAGUF.

During his interview on the platform today, Mr Odebisi pointed out that mid-level lenders have shown the desire to expand their operations and cement their stronghold of the retail market segment of the banking industry.

“I advise investors to look closely at tier-2 banking stocks, especially FCMB, Fidelity Bank and even Wema Bank.

“They have shown the desire to take charge of the retail segment, but their dividend at the end of the first quarter of this year will give more direction to investors on what to do,” he stated.

When asked if it is not too late for investors to take a position in the space, he responded, “What I would say is that it’s not too late simply due to the fact that the banks are still expected to continue growing their profits.

“So, as long as that is the case, the outlook for them is positive. I will tell you that the 113 per cent rally we have seen so far from Fidelity Bank is not the ceiling because that stock still has a long way to go, especially if management comes out with a strong dividend announcement by the end of Q1. Then, we would probably see further rallies to a much higher valuation.

“I still expect that to be the case for other tier-2 banks just because the higher their dividend announcement, the more interest investors will show in those stocks. So, there is definitely still a lot of headroom.”

Business Post reports that Fidelity Bank equities have risen by over 100 per cent in one year and nearly 180 per cent in three years. It has grown by 11 per cent in one week, over 25 per cent in one month and almost 38 per cent this year. As of press time, the stock was down by 1.50 per cent to N5.91.

As for FCMB, it has gained 1.02 per cent today to N4.95, 18 per cent in one week, 32 per cent in one month, 44 per cent in three months, 39 per cent this year, 63 per cent in one year, and 151 per cent in three years.