Shares of First Bank of Nigeria Holdings Plc have suddenly turned investors’ brides, with the stock leading significantly in both price mark up and volume traded.
If you are wondering why, here are the reasons FBN shares may yield unusually high returns on investment beyond stakeholders’ expectations by end of this year.
And knowledgeable investors are taking it for granted.
InsideBusiness findings show that two major factors are behind investors’ bullish outlook of the equity.
First, the bank is believed to have fully provided for its record non-performing loans exceeding N1.5trillion which had impinged on dividends payment since 2015 up to last year.
While the deposit money bank struggled with impairment provisioning for huge non-performing loans during the last five years, earnings by subsidiary firms of the Holding Company kept paying dividends to shareholders ranging from 20kobo to 45kobo.
Having cleaned up the Bank’s balance sheet, investors are expecting mouthwatering returns far above the 45kobo dividend it had paid for last year when its balance sheet was not balanced.
“If FBN could pay 45kobo dividend when its books were loaded with huge non-performing loans, how much more now that they have cleaned up the books?” Garba Kurfi, Managing Director, ATP Securities and Funds Limited, stated.
He added “FBN made provisions for over N1.5trillion non-performing loan. When you make a provision, it is not a total loss. You can recover from your loss.
“When you recover from your loss, it becomes a profit to you. So, probably the bank might have started to make some recoveries. Investors are anticipating such, and have started taking a position,” said the senior dealing member of the NGX.
Secondly, and more importantly too, the bank is believed to be the biggest beneficiary of Airtel Africa’s ongoing buyout of Airtel Nigeria.
Apart from Airtel Africa which is listed on dual exchanges in Africa and Europe, there is also a subsidiary called Airtel Nigeria which has other shareholders. FBN Holdings Plc is one of the biggest shareholders. And Airtel Africa is buying out Airtel Nigeria so that at the end they will merge it with Airtel Africa and cancel out Airtel Nigeria, leaving only one surviving entity which is Airtel Africa.
How does buying out Airtel Nigeria by Airtel Africa, affect shares of First Bank?
“Buying out FBN stake in Airtel Nigeria means they are going to pay FBN a lot of money that will constitute extraordinary income for the bank,” said a stockbroker that is familiar with transactions going on in the past few weeks.
“If those Airtel Nigeria shares are bought up, FBN will earn so much of the proceeds. That is to say, the money will end up in FBN and yield extraordinary income. This is the factor driving demand for the shares of FBN,” David Adonri disclosed.
An analysis of the shares shows that over a 450million units were traded in one session last week at N16 per share.
On Tuesday, over a 250million units were traded at N10.40 per share up from N10 at which the stock closed the previous day.
In 2017, FBN shares traded as low as N2 per share and had fluctuated between N4 and N5 per share before it started trending up this year after the bank announced that it had fully provided for its non-performing loans.
“For those who have taken position when the stock was traded at N2, they are ok. For those who took a position at N7.50 per share, they have gained almost 40 per cent now that the stock is trading at N10.40 per share. They are good to go.
“However, for long term investors, I will say, invest in it and hold it because the bank has not disclosed yet how much they have recovered. Therefore, whether for short term, medium or long term, the stock is good to go,” Kurfi concluded.