… insurance stocks, non-native banks to the rescue
The Ghana Stock Exchange’s Financial Stocks Index (GSE-FSI) – which tracks the performance of publicly listed financial sector stocks – has seen little movement in the month since public debt restructuring concerns bubbling beneath the surface reached their peak some four weeks ago.
In that time, the GSE-FSI has recorded a loss of 0.32 percent to begin the second half of October at 2,068.16 points. Its performance translates to a year-to-date (YtD) loss of 3.89 percent compared to the broader market, which has fallen by 11.79 percent since turn of the year.
An examination of official data shows that the GSE-FSI has been largely upheld by the performance of four stocks: two in insurance – SIC Insurance (SIC) and Enterprise Group (EGL); as well as two banking stocks, Trust Bank Gambia (TBL) and Access Bank (ACCESS).
With a 312.5 percent increase in its share price and a total YtD return of 370 percent, SIC remains the market’s top gainer in 2022 on the back of solid financials, as it grew post-tax profit by 700 percent from GH¢7.36million in 2020 to GH¢58.6million in 2021.
Similarly, EGL has seen a YtD appreciation of 14.7 and 17.36 percent in its share price and returns respectively. Its impact has been more pronounced due to its market capitalisation, which stood at GH¢547million – 0.85 percent of the entire market – as at the middle of October 2022.
TBL remains the best performing bank with a 41 percent increase in its share price coupled with a return of 58.05 percent, ostensibly due to its limited exposure to Ghana’s macroeconomic developments. The same can be said of Ecobank Transnational Incorporated (ETI), which has seen its share price appreciate by 87.5 percent on a year-on-year basis – ranking it seventh on the GSE in terms of YtD performance.
Meanwhile, Access Bank – owing in part to its impressive performance into first half of the year, when it grew its opening income by more than 30 percent on an annualised basis – has returned 52.5 percent to investors this year, leading the gainers-pack in September.
Commenting on the development, Head of Research at Databank, Alex Boahen, stated that contrary to perceptions the market is not efficient as prices do not readily reflect information, the performance of financial stocks – which have been predicted to drive the GSE-CI to more than 10 percent profitability at end of the year – shows that investors are reacting to prevailing market conditions.
“We actually thought that the banking sector was going to be the main driver of growth this year, but all these issues came along – the downgrade of sovereign debt and that of some banks – which have cast some doubts as to whether the banks can actually perform to expectation,” he stated.
He was however of the view that banking stocks have not been impacted as adversely as they could have been, owing to the caution with which investors have approached the sector after the shake-up. This, he said, has seen shares in the sector trade below their true value, with P/E ratios which have historically been around the 12x mark currently around 5x.
“For some time now, the banking sector has been significantly undervalued following the financial sector shake-up. Banks have not fully really recovered on the market, even though they have strengthened their capital and asset bases; but on the market, they have not really recovered and are trading at very low multiples compared to pre-crisis level. Just as we were expecting to see an uptick COVID-19 came, and after it the war and other economic fallouts,” he explained.
In its first quarter 2022 Ghana Markets Review and Outlook for 2Q22, dubbed ‘Cautious Investor Posture as Economic Uncertainty Clouds Market Outlook’, the research arm of Databank predicted that the equities market will end the year with a positive return of about 12 percent despite its slow start. This return, it forecasted, will be driven by financial firms.
Since then, sentiments have nose-dived dramatically – with the GSE-CI on course for a 10-plus percent loss at close of the year.