Capital Markets

Analysts split on Housing Finance, National Bank correct share valuation

NBK

A National Bank branch in Nyeri town. PHOTO | FILE

Analysts have sharply differed on the valuations of National Bank and Housing Finance (HF) shares.

AIB Capital marked the National Bank as having the best capital gain opportunity among listed lenders, valuing it at Sh26.40 per unit compared to its current trading price of Sh15.80, or an upside of 67.4 per cent.

Cytonn Investments, however, valued the National Bank stock at Sh16.10 being an upside of just two per cent.

HF, currently at Sh22 each, is ranked second by AIB with an upturn of 26 per cent given a fair target price of Sh27.70.

In its analysis Cytonn Investments though said it expected the HF share price to drop to Sh19.80.

“We do not necessarily view the National Bank and Housing Finance group as attractive but as good upside opportunities,” said AIB Capital in a market report.

The analysts however note the National Bank is in need of a turnaround strategy to be considered attractive whereas HF needs to grow its return on equity to rise above its cost of equity.

“That is why despite above peers upside, we remain cautious about adding these two banking stocks in our recommended portfolio,” said AIB Capital.

Cytonn rated Kenya Commercial Bank (KCB) and Diamond Trust Bank (DTB) as having the best opportunity in price growth.

“KCB and DTB have the highest upsides at 49.2 per cent and 23.7 per cent, respectively,” said Cytonn.

KCB was assigned a target price of Sh58.30 (Monday Sh43.75) while DTB was priced at Sh246. In contrast, AIB valued DTB at Sh183.7, lower than the current price of Sh187 per unit.

There are 11 listed banks in the country with all of them trading at prices lower than a year ago. Investors buying stocks now are banking on a reversal to help them reap from capital gains as well as dividend expected to be declared by end of March.

There are different formulas of valuing shares which focus on a company’s current financial health, expected dividend payouts and future earnings.

Analysts also have qualitative analysis based on immeasurable factors such as their impression of the top management strategy and vision for the company as expressed in interviews and other factors such as corporate governance.

Banking portfolio

Foreign investors are usually the main consumers of the technical analytical reports by investment firms unlike local players who are largely sentimental investors.

“Our banking portfolio recommendation selected KCB and Equity as our top picks among the blue chip local banks, Barclays among the foreign affiliated banks and I&M Bank in the tier-two category,” said AIB Capital.

Other factors considered during investment include the ease of entering and exiting a counter as reflected by investor activity.

The banking counters attract a lot of investors due to the high returns posted by Kenyan banks riding on high interest spreads and operational efficiencies arising from technological innovations.