Nigerian Banks
Too early for the Phoenix: upgrade UBA to
Overweight, downgrade GTB to Neutral and First
Bank to Underweight
Banks
Andrew CuffeAC
(27-11) 507-0364
andrew.j.cuffe@jpmorgan.com
J.P. Morgan Equities Ltd.
Summary Ratings and Estimates
Company Price Rating Price Target PT End Date Metric Current FYE Next FYE
First Bank of Nigeria plc (NGN) 18.14 UW (NGN) 15.78 Feb-10 Adj. EPS (NGN) 2.32 (NGN) 2.71
prior N (NGN) 40.11 Sep-09 (NGN) 2.74 (NGN) 3.55
Guaranty Trust Bank Plc (NGN) 9.43 N (NGN) 11.32 Feb-10 Adj. EPS (NGN) 1.63 (NGN) 1.87
prior OW (NGN) 32.19 Sep-09 (NGN) 1.59 (NGN) 2.10
Intercontinental Bank plc (NGN) 7.25 N (NGN) 7.49 Feb-10 Adj. EPS (NGN) 2.26 (NGN) 2.28
prior (NGN) 31.28 Sep-09 (NGN) 2.70 (NGN) 3.61
Oceanic Bank plc (NGN) 6.30 N (NGN) 7.76 Feb-10 Adj. EPS (NGN) 2.24 (NGN) 2.16
prior (NGN) 25.75 Sep-09 (NGN) 2.02 (NGN) 2.88
Union Bank of Nigeria plc (NGN) 13.05 UW (NGN) 9.12 Feb-10 Adj. EPS (NGN) 2.03 (NGN) 2.29
prior (NGN) 49.65 Sep-09 (NGN) 2.75 (NGN) 3.63
United Bank for Africa plc (NGN) 8.91 OW (NGN) 11.47 Feb-10 Adj. EPS (NGN) 2.53 (NGN) 2.60
prior N (NGN) 33.40 Sep-09 (NGN) 2.94 (NGN) 3.55
Zenith Bank plc (NGN) 16.18 N (NGN) 19.23 Feb-10 Adj. EPS (NGN) 3.04 (NGN) 3.46
prior (NGN) 46.04 Sep-09 (NGN) 4.21 (NGN) 5.63
Source: Company data, Reuters, J.P. Morgan estimates. All prices as at 09 Feb 09.
See page 31 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Table 1: Estimated Trailing P/E and PB
Ratios
P/E Ratio PB Ratio
First 6.9 1.2
GTB 5.4 0.8
Intercontinental 3.0 0.6
Oceanic 2.9 0.5
UBA 3.3 0.9
Union 6.0 1.3
Zenith 4.8 0.7
Source: J.P. Morgan estimates. Priced as at close on
9-Feb 2009
• We have re-looked at our earnings and valuations for the top Nigerian
banks. We factor in lower economic growth over the next two years,
with commensurately lower earnings for the banks. We also use a higher
discount rate to reflect the increased long bond rate and increased risk
aversion on the part of international investors. We are rolling over our
price targets to Feb-10 from Sep-09.
• Due largely to price movements, we upgrade UBA to Overweight, and
downgrade GTB to Neutral and First Bank to Underweight. We keep our
Underweight recommendation on Union. Upside to our 12-month, DDMbased
target prices ranges from -30% (Union Bank) to +29% (UBA).
• Most of the banks are trading at discounts to book value, but we believe
the banks are unlikely to rerate materially in the short term because:
o In our view, balance sheets have become less reliable due to CBN
guidelines whereby banks can avoid providing for non-performing
stock market exposures. Also, disclosure remains poor and there is
low visibility on earnings.
o At face value, on a P/E basis, the banks look cheap relative to other
EM banking opportunities, but adjusting for potential stock market
losses, we estimate Nigerian banks trade at a substantial one-year fwd
P/E premium to EM banks (Figure 8).
o The Naira has been weak and volatile and this adds to the uncertainty
of US$ returns. From an international investor perspective, liquidity
in the equity market remains low.
• Notwithstanding our caution on short term prospects for the sector, on an
intra-sector view our top pick is UBA (+29% to PT) and our least
preferred counters are Union (-30% to PT) and First (-13% to PT).