Investment analysts have placed KCB Group as the third best banking stock in the frontier markets.
According to a report (see report) by investment and research firm, Exotix, there are five banks that will deliver a 40 percent upside for investors and trade at 30 percent discount in the frontiers market.
The five banking stocks sit at the top of the a list of 50 banks in Africa, Middle East, and South Asia that the firm analyses on a regular basis.
- Habib Bank Limited (Pakistan)
The bank has strong loan growth allied to attractive valuation. Habib Bank Limited (HBL PA), is the largest commercial bank in Pakistan and enjoys 14 figures market share of domestic deposits (June 2017). It has the largest domestic branch network (1,687) and operates a further 54 branches across over 25 other markets. HBL’s business model is well diversified: geographically, HBL has 16 percent of assets employed overseas, while on the operating profit front, non-interest income contributes 28 percent of total operating income, a figure that is projected to grow further given management’s focus towards fee income. HBL has a market capitalisation of US$2.7bn while the ADV for past 12 months was US$3.4m.
2. Zenith Bank
Zenith Bank has resilience in profitability, stellar capital ratios and attractive valuation. It is the largest deposit base in Nigeria (13.9 percent market share) and second largest assets book (13.5 percent market share, behind First Bank Nigeria). The bank operates primarily in Nigeria (88 percent of earnings; 90 percent of assets) with subsidiaries in Ghana, UK, Sierra Leone, and Gambia. Zenith Bank has a market cap of US$1.9bn and an ADV of US$1.3m.
3. KCB Group
KCB is a flight to quality beneficiary, plus management focus has shifted from growth to profitability. It is the largest bank in Kenya with a market size share of 14.1 percent and total assets of Sh504bn. The key business focus is corporate banking (52 percent of loans) and mass market retail banking. In addition the bank carries out a large portion of government business as it partially government-owned (17.31 percent by the Treasury and 7.52 percent by the National Social Security Fund). The bank has outlets in five regional markets (Uganda, Tanzania, Rwanda, Burundi and South Sudan) though plans are underway to scale down the South Sudan unit. Market cap stands at US$1.25bn, ADV is US$0.69m.
4. Hatton National Bank
Hatton National Bank has high interest margins, is well capitalised, and is attractively valued. It is the second largest private commercial bank in Sri Lanka. It has a market share of loans of 11.2 percent. HNB is primarily focused on SME and retail banking but also has a decent corporate banking franchise. It stands out on the basis of having the highest interest margins in our Sri Lankan banking coverage, at 4.95 percent. The bank has a market cap of US$713mn and ADTV of US$0.15mn.
5. Stanbic Uganda
Stanbic Ugandan has superior ROA in an under-penetrated market. Uganda is a relatively underdeveloped market with banking assets to GDP at 26 percent, lower than regional counterparts. Stanbic is Uganda’s largest bank on almost all metrics: its current asset, deposit and profit shares are roughly 19 percent, 17 percent and 31 percent respectively. The bulk of the bank’s business is mainly from corporate banking, which accounts for 64.9 percent of loans, 32 percent of liabilities and 63 percent of profit. The retail unit accounts for 15 percent of loans, 20 percent of liabilities and 24 percent of profit. Also, the business is also largely supported by Treasury and capital management which supplies 48 percent of liabilities. Stanbic Uganda’s market cap is US$391mn, with ADV$0.029m.