The current price of First Bank at N16.30, a 12 percent premium to analysts’ year- end target price of N14.50 (from N13.67), the 1.3x book value and 6.0x P/E suggest the bank’s superior valuation over its peers
The bank’s book value and price earning ratio makes it cheaper than Zenith Bank with P/BV and P/E of 1.4x and 6.7x respectively.
Analysts said the value of the stock is likely to continue on the upside given its third quarter result and anticipated year end result.
With relative stability in operating expenses and impairment charge, the after tax profit showed the earnings profile at N66.3 billion, 5.6% shy of previous quarter’s momentum. This translates to N2.71 annualized EPS and 21.4 return on average equities (RoAE) and confirms the bank’s earnings power .
The cumulative 9-months gross earnings was N267.7 billion, a 6.5 percent ease in quarterly run-rate. First Bank’s 19 percent YoY growth is higher than Nigeria’s nominal GDP growth . And Vetiva Capital Management forecasts FY outlook of N348.6 billion with expected N1.20 dividend/share (50% payout ratio) ; an attractive 7.4 percent yield over current market price and translates to a 41 percent growth over 2011 payout. ‘With this yield attraction in sight, we expect investors to be soft in harvesting the 83.2% YTD gain in FirstBank’, the company said.
With cost of funds at 2.5 percent despite heightened competition for cheap fund, FirstBank’s Net Interest Margin (NIM) remains relatively healthy at 8.4 percent .Analysts expectation of easing IFRS transition effect played out in the third quarter results , with asset yields easing a further 10bps QoQ to 10.7 percent , despite increased asset allocation to higher yield risk assets propping up loan book 4.8 percent QoQ and a 22.5 percent YTD growth.
Investment analysts said interest income rode on resilient loan volume to compensate for mild weakness in yield and increased encumbered assets (400bps in cash reserve requirement to 12%), growing 4% QoQ.