As I watch the massive dislocation between Nigerian banks’ profits and their market caps in the Nigerian Stock Exchange (NSE), I predict that by 2023, if Naira continues to fall, two of our five leading banks would be taken private. Yes, money men will buy them and take them private. My thesis is simple: if your annual net profit is about 30% of your market cap, the public market looks like a waste of time! This is the only way to fix this paradox: The Paradox of Bank Earnings in Nigeria states that the market performance of the banking sector is uncorrelated with improving revenue and profitability.
Zenith Bank market cap is N533.740 billion, but in H1 2020, it generated N104 billion net profit. If it repeats that for H2, you are looking at a net profit of N200 billion for 2020. Yet, the market is pricing the bank at N534 billion. Using simple equations we learnt in secondary school, and running some numbers, the bank is wasting time in the NSE. Of course, there could be regulatory requirements which may force it to be on NSE.
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