Fifteen Nigerian firms spanning banks, insurers, industrials, and actual property are presently buying and selling beneath their ebook worth, with a median P/B ratio of simply 0.60.
These embrace Sensible Merchandise Nigeria, ETI, Entry Holdings, UBA, FirstHoldCo, CI Leasing, FCMB, John Holt, UPDC REIT, Julius Berger, Zenith Bank, Regency Alliance Insurance coverage, Aso Financial savings, Briclinks Africa Plc, and Linkage Assurance.
On paper, this implies buyers can purchase their shares for lower than the worth of their internet belongings.
However does a reduction all the time spell alternative? For robust banks like Zenith, UBA, and Entry, it might trace at undervaluation.
For struggling companies like Sensible Merchandise, Julius Berger, and Aso Financial savings, nonetheless, the market might merely be pricing in weak spot.
The large query: are these low price-to-book ratio firms hidden bargains, or worth traps in disguise?
Why Value-to-book (P/B) ratio issues
The worth-to-book ratio compares an organization’s market value to its ebook worth (internet belongings). A ratio beneath 1.0 suggests buyers are paying lower than the asset worth, which seems like a discount.
However in actuality, such reductions can simply as simply sign deeper issues, from weak profitability to overstated belongings. That makes P/B each a helpful metric and a possible crimson flag.
Banking sector: Bargains over traps?
From the banking sector, six banks commerce at a median P/B ratio of simply 0.49x. Given their robust fundamentals and constant earnings, they seem extra like bargains than traps.
Over the previous 5 years, these banks have delivered a median revenue CAGR of 48%, internet asset CAGR of 31%, and ROE of 26%.
Zenith Bank has been rising its revenue steadily at about 35% yearly (CAGR) over the previous 5 years. Its internet belongings have additionally elevated by 29%, displaying that the bank is stronger financially.
The inventory itself has executed effectively, rising 33.5% this 12 months, and analysts principally advocate it as a BUY.
Regardless of this rally, it nonetheless trades at simply 0.65 instances its ebook worth, that means buyers are paying solely 65 kobo for each N1 of the bank’s internet belongings.
- FCMB Group Plc: Revenue CAGR of 30% and asset progress of 25%. Analysts are overwhelmingly optimistic, and the share is up 19% YtD. A strong discount.
- Ecobank Transnational Inc: The steepest low cost (0.36x P/B) but in addition the quickest progress: 85% revenue CAGR and ROE of 33%. Up 30% this 12 months, it seems like a discount hiding in plain sight.
- Entry Holdings Plc: Revenue CAGR of 43% and internet belongings up 38%. Modest YtD good points (15%), however the fundamentals counsel extra upside.
- FirstHoldco Plc: Revenue CAGR of fifty% and ROE of practically 30%. With solely 16% YtD good points, it seems neglected and nonetheless low cost at 0.47x ebook.
- United Bank for Africa: Revenue CAGR of 48%, ROE of 28%, and the replenish 42% this 12 months. Even after the rally, it nonetheless seems undervalued.
Non-Banks: Extra traps than Bargains
Outdoors banking, the image is murkier. Many firms commerce at reductions, however their fundamentals don’t again the low a number of.
- Sensible Merchandise Nigeria: share value is up 260% this 12 months, but income and gross sales barely grew in 5 years. The rally seems speculative, making this a worth entice.
- UPDC Actual Property Funding Belief: Value up 58% however belongings hardly moved. Seemingly buyers chasing yield, not actual progress.
- Julius Berger Nigeria Plc: Sturdy asset progress however skinny income and a falling share value. Measurement doesn’t equal worth.
- John Holt Plc: Big revenue progress and excessive ROE, however the market hasn’t observed but. One to look at.
- Regency Alliance Insurance coverage & Linkage Assurance: Each surged in value this 12 months, however profitability lags. Valuations look stretched, suggesting overheated trades reasonably than bargains.
- Aso Financial savings and Loans: Virtually no actual revenue regardless of flashy “progress” numbers. The inventory hasn’t moved this 12 months. Clear entice.
- C&I Leasing Plc vs. Bricklinks Africa Plc: Each commerce at reductions, however C&I Leasing plc stands out. With regular asset progress and an 83% rally this 12 months, the market appears to be recognizing its turnaround story. Bricklinks Africa Plc, against this, has proven no progress and no value motion — nothing to cheer about.
Total, low cost doesn’t all the time imply good. For Nigeria’s huge banks, low valuations are a possibility they’re delivering robust income and progress but nonetheless commerce at a steep low cost.
For many non-bank names, nonetheless, the reductions masks weak earnings and poor returns, making them extra entice than treasure.