The majority of Kenya’s listed banks are still undervalued by stock market investors in respect to their net asset value, Despite recording record earnings in a difficult economy that has lowered valuations and profitability for other firms,
According to a review of lenders’ price-to-book valuations, nine out of twelve lenders have a price-to-book ratio of less than one, thereby undervaluing them according to this criterion.
The ratio, in conjunction with the price-to-earnings (P/E) ratio, is used by investors to determine if equities are overpriced or undervalued in the stock market. If the ratio is low, a stock may be inexpensive.
As of Tuesday, the P/B ratios for banks listed on the Nairobi Securities Exchange (NSE) ranged from 0.17 times for HF Group to 1.15 times for Standard Chartered Bank Kenya, with the majority falling between 0.4 and 0.9 times.
The median P/E ratio for banks has dropped from 8.4 times to 3.8 times over the past five years, while the median P/B has dropped from 1.2 to 0.7 times.
Banks have constantly grown their profits, with the exception of the Covid-19-affected 2020 financial year, which has assisted in raising the caliber of their books. The asset bases of the banks have also grown as a result of substantial lenders’ acquisitions in Kenya and other countries in the region.
According to data from the Central Bank of Kenya (CBK), the banking industry made a record Sh244 billion in pretax profits in fiscal year 2022.
Equity Group and KCB, the two largest lenders by assets and market capitalization, have both seen share prices fall in the last year, while others, such as Stanchart and NCBA Group, have witnessed double-digit price increases.
Seven of the 11 public lenders’ share prices have risen in the last year, while four have fallen. Despite being among of the most consistent dividend payers on the market, lenders’ share prices have risen very little.
Ten of the eleven banks announced a distribution for the fiscal year ending December 2022, with dividend yields ranging from 5.7 percent to 13 percent, virtually competing with net returns on government assets.
According to the price-to-book ratio of other big blue chip corporations, which is higher than that of banks, bank stocks are overvalued by investors.
Safaricom (3.9 times net assets), EABL (4.8 times), and BAT (2.7 times) all have higher P/E ratios of 11.2, 11.3, and 6.5 times, respectively, in addition to having share prices that are greater than two times their book value.
Large lenders (Equity, KCB), Safaricom, and EABL also dominate NSE trading, owing mostly to foreign interest in their counters.
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