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Investors Keep an Eye on Fidelity Bank as Bargain Hunting Season Begins

Feb 23, 2022   •   by Proshare Research   •   Source: Proshare   •   eye-icon 165 views

WednesdayFebruary 23, 2022, / 5:37 PM / Adaeze Nwachukwu, Proshare Research / Header Image Credit: Fidelity Bank/EcoGraphics


Equity investors have taken out calculators to review portfolio positions as corporations announce their year-end 2021 results in Q1 2022. Proshare's recently released year-end 2021 review and 2022 outlook report underscored the importance of the banking sector in investors' portfolios in the year. The report noted that the financial service sector would likely grow by +18.3% in 2022 against +23.23% in Q3 2021.


The financial services sector has done well regardless of challenges deposit money banks (DMBs) have faced in recent quarters, with negative quarterly growth since Q4 2020. The industry fell by -2.48% in Q2 2021 and -0.46% in Q1 2021 but would likely see a reversal in 2022 on a GDP growth surge (projected at between +2.9% and +3.2% per annum) and a variety of businesses picking up pace.


In this light, one of the thirteen NGX-listed banks on investors' radar in Q1 2022 is Fidelity Bank. The bank's recent Q4 2021 result showed a +21% growth in gross earnings, a +43.1% rise in net profit, and a +9.8% growth of net assets.

 

Time-Stamping a Bank and its Value Line

With the appointment of Mr. Mustafa Chike-Obi as Chairman in July 2020 and Mrs. Nneka Onyeali-Ikpe as Managing Director and Chief Executive Officer in January 2021, there has been a +85.63% rise in nominal market appreciation of the institution between July 2020 and February 23, 2022. The market downturns that affected the fortunes of most stocks that rode the back of the COVID-19 pandemic in 2020 did not have a major effect on the market price of Fidelity Bank. The gravity-defying rise in the bank's equity value over the last two years is seen in the upward movement of its share price over the last seven consecutive annual quarters (see chart 1 below).


Chart 1: Fidelity Bank's W-0n-W Share Price Movement July 2020 - February 2022

Proshare Nigeria Pvt. Ltd.

Source: NGX, Proshare Research

Data as of 23rd February 2022

 

Market technicians or Quants have noted that the bank's market Beta of 0.57 was slightly more volatile than the overall NGX Index over the past two years. This explains the bank's moderate share price movement in 2020 at the peak of the coronavirus pandemic which was accompanied by business lockdowns, supply chain disruptions, and movement restrictions.


A Competitive line in the Sand

Comparing the performance of Fidelity Bank with a Tier 1 Bank like Zenith Bank which boasts the banking sector's largest individual bank shareholders' funds, Fidelity Bank's post-COVID-19 price movement has given a larger return to investors than its bigger rival.


The share price of Zenith Bank has risen by +5.07% while Fidelity's has grown by +11.91% between January 2021 and February 2022.


Fidelity Bank's year-to-date (YTD) 2022 performance also gave a larger return of +21.57% compared to a return of +7.80% for Zenith Bank (see chart 2 below).

 

Chart 2: Fidelity & Zenith Bank Share Price Movement January 2021 - February 2022

Proshare Nigeria Pvt. Ltd.

Source: NGX, Proshare Research

Data as of 23rd February 2022

 

Fidelity Bank's recent market price performance mirrors its recent year-end 2021 results and has gotten investors to smack their lips with glee as they hope to see superior dividend yields of at least 6% which could result in a total year-on-year (Y-o-Y) market yield of between 19% and 21%, keeping investor returns above the recent headline inflation rate of 15.6%.

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