Nigerian banks hold value

By Ed Cropley, African Investment Correspondent

JOHANNESBURG (Reuters) - Shares in Nigeria's banks have soared since March but remain a fraction of last year's peaks, making them attractive to investors seeking a slice of the potential growth in Africa's most populous nation.

A new central bank governor with a background in risk management chosen from leading lender First Bank of Nigeria (FBNP.LG) is also making all the right noises about improving the sector's notoriously murky financial disclosure.

Furthermore, Lamido Sanusi's stated desire to relax limits on foreign ownership has breathed new life into the view that another wave of consolidation, this time involving major global players, sits around the corner.

Does all this sound too good to be true, or are Nigeria's rollercoaster banking stocks -- among the best emerging market performers of 2006/07 before crashing back to earth late last year -- set for a sustained revival?

CHEAP, CHEAP

Even the relative nay-sayers agree the shares look cheap, and nobody is arguing against the long-term logic of oil-rich Nigeria's demographics: 140 million people and only 23 million bank accounts.

First Bank, the oldest in Africa's second biggest economy, is at 22 naira, up 60 percent from January's low but only just over a third of their 62-naira peak hit in August 2006.

Rivals Access Bank (ACCE.LG), Zenith Bank (ZETH.LG), United Bank for Africa UBA.L (UBA.LG) and Guaranty Trust Bank (GTB.LG) have been on a similiarly gut-wrenching ride, plunging 80 percent or more from 2007 or 2008 highs to January's lows.

Since those depths, exacerbated by a headlong rush of foreign capital from the perceived high risk of African equities, they have recovered 40 percent or more but are still trading at discounts of as much as 18 percent to book value.

By contrast, South Africa's Standard Bank (SBKJ.J) is trading at 1.35 times its 2009 forecast book value.

"The main reason to like them is the low valuation. Among the major banks, six are trading at a discount to book value," said Christopher Hartland-Peel, an African equities analyst at London-based brokerage Exotix.

With price/earnings ratios ranging from 6 to 9, they are also better value than, say, brewer Guinness Nigeria (GUIN.LG), with a P/E of 12, for investors seeking to hitch a ride on the pacy 5 percent growth forecast for 2011 and beyond.

HERE COME THE FOREIGNERS - OR DO THEY?

New central bank head Sanusi's comments this week on relaxing foreign ownership curbs sparked hopes of a round of consolidation similar to a 2005 shake-up that cut the number of banks to 25 from 89 and triggered a period of aggressive expansion as each tried to corner market share.

"That will be a big driver of the market," said Francis Beddington, head of research at Insparo Asset Management. "I think you'll see greater consolidation in the sector, both domestically and with foreigners coming in."