Institutional investors have intensified their buying activities on the Nigerian Exchange (NGX), with United Bank for Africa (UBA) and FirstHoldCo emerging as the most sought-after stocks, according to market data. The shift towards bank stocks reflects growing investor confidence in the sector's earnings potential and dividend yields.
UBA and FirstHoldCo Lead Institutional Trades
Data from the NGX shows that UBA recorded the highest institutional inflow of N2.8 billion, followed by FirstHoldCo with N1.9 billion. Other banks, including Access Holdings, Zenith Bank, and Guaranty Trust Holding Company (GTCO), also saw significant institutional buying. Analysts attribute this trend to the banks' strong financial performance and attractive valuations.
According to a market report by Lagos-based investment firm Meristem Securities, “The shift towards bank stocks is driven by their resilient earnings and high dividend yields, which appeal to institutional investors seeking value in a high-interest-rate environment.” The report noted that banks have benefited from improved net interest margins and non-interest income.
Market-Wide Impact
The buying spree has lifted the NGX All-Share Index by 0.8% in the past week, with the banking index gaining 2.1%. Year-to-date, the banking sector has outperformed the broader market, rising by 12.5% compared to the All-Share Index's 8.3% gain. This has prompted portfolio rebalancing by institutional investors, who are increasing their exposure to financial stocks.
Data from the NGX reveals that institutional participation accounted for 68% of total trading volume in the banking sector last week, up from 55% in the previous month. Retail investors, however, have been net sellers, taking profits after the recent rally.
Outlook for Bank Stocks
Analysts expect the institutional buying momentum to continue, driven by upcoming dividend declarations and expectations of strong full-year earnings. UBA recently announced an interim dividend of N0.50 per share, while FirstHoldCo is expected to declare a final dividend in the coming weeks.
“We see further upside in bank stocks as institutional investors position for dividends and earnings growth,” said a research analyst at Chapel Hill Denham. “The sector remains undervalued relative to its historical average, offering a margin of safety for long-term investors.”
The NGX banking sector currently trades at a price-to-earnings (P/E) ratio of 6.8x, compared to the market average of 11.2x, indicating room for re-rating. However, risks remain, including potential regulatory changes and macroeconomic headwinds such as inflation and currency volatility.
