Despite the fall in the share prices of listed companies in the last two weeks, shares of many of the consumer goods companies remain slightly over-priced and will likely experience more corrections, said the Managing Director, Financial Derivatives Company, Mr. Bismark Rewane.
Rewane said that unlike the consumer goods sector, banking stocks are under-valued and have the potential to withstand the present downturn in the market.
Making the postulation in his bi-monthly review of the economy for June, 2013, 'Bi-Monthly Economic and Business Update, he said, "At current level, the market remains slightly overpriced with a trailing price to earnings (P/E) of 13.9x and many of the consumer goods stocks still trading at a P/E of greater than 30x. We expect the correction to continue in this sector, although we do not expect an Armageddon as most stocks in the sector are defensive and are likely to weather the storm."
He, however, stated that the market looks cheap on the banking sector perspective, saying, "All listed banks except Stanbic IBTC Holdco Plc, Union Bank Plc and Wema Bank Plc, are trading in single digit P/Es, with the most attractive being UBA and Access Bank with a P/E of 4.9x and 5.8x respectively.
"Given that stocks in the banking sector are held by portfolio investors with a long-term outlook and the strong earning power of the sector, we expect banking stocks to remain resilient even in turbulent times. Data also shows that there has been more buying than selling of tier one banks shares in the last three months, giving the sector a stamp of approval by investors."
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