Banks tipped to be top NSE performers in 2023


Equity bank branch in Kibera slums in Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

Analysts have tipped banks to be the top-performing counters at the Nairobi Securities Exchange this year based on their earnings growth and anticipated higher dividend payouts.

Banking sector stocks are expected to see a lift from recent developments which have included the adoption of risk-based lending and the resumption of charges on bank-to-mobile transactions.

At the same time, the lenders are poised to notably raise dividends to shareholders for the year ended December, with preliminary results showing they made a record pre-tax profit of Sh223.7 billion in 11 months to November.

Banks are expected to disclose their full-year earnings and recommended final dividend payouts in the next few weeks, after which annual general meetings will be set to ratify the proposed dividends.

The dividend season is set to boost demand for banking stocks with institutions such as NCBA Group and Standard Chartered Bank Kenya among those expected to raise their payouts.

“The banking sector is likely to see a rally in the second quarter as retail investors chase after dividends, However, the momentum is likely to subside once banks go ex-dividend,” said analysts at Sterling Capital.

The investment bank lists three institutions among its top stock picks for the year –KCB Group, Stanchart and NCBA.

KCB’s acquisition of DRC’s Trust Merchant Bank is expected to lift its asset base to Sh1.5 trillion while the bank is set to enjoy improved asset quality, incentivizing it to increase lending.

Stanchart has signalled a higher dividend payout, having made a record interim distribution of Sh6 per share. The bank’s total payout for the year is expected to top the Sh20 per share mark.

On its part NCBA is set to deliver higher earnings partly helped by its strong forex income growth which has served to lift its non-interest revenue.

Analysts at Genghis Research who have Absa, KCB, Equity Group, Co-op Bank and NCBA as their top picks, have a buy recommendation on the latter four stocks and a hold option for Absa.

KCB is seen as having the biggest potential capital gain of 46.5 percent ahead of Co-op and Equity at 33.73 and 25.49 percent respectively.

Genghis analysts see banks as the most resilient component of investor portfolios in yet another volatile year, characterized by continued foreign investors' selloffs from the high-interest rates in advanced economies and persistent dollar shortages which have hindered foreign participation.

“We still see long-term value in banks. For us, the valuation elasticity in banks makes them a must-have in defensive portfolios,” noted analysts at Genghis Capital.

“In our view, long-term value creation will be driven by the perpetual demand for money, lower funding costs and sustained resilience.”

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