Improved earnings in 2012 captured in valuations
The recovery in the Nigerian banking sector gathered momentum in 2012, resulting in a 1,610bp expansion in ROAE for our universe. While the sector is now on a more solid footing for the longer term, we believe the time is right to pause for some breath. On average, the sector has gained 42.3% ytd compared with the All Share Index’s (ASI) 32.7%. In 2012 the sector appreciated 44% (ASI: 35.5%). Following this impressive rally, our universe is now trading on a 2013E P/B multiple of 1.1x (vs MSCI EM banks on 1.3x) for an average 2014E ROAE of 19.0%. On reflection, the market’s reaction to the Q4 2012 / Q1 2013 earnings season appears to suggest that better-than-expected results did not lead to a commensurate multiple expansion necessarily because valuations were approaching fair value levels, and the market may have begun to anticipate some headwinds that are likely to limit earnings growth in the near term.
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