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AFKI Market Journal: 6 Fast-Growing, Reasonably-Priced African Bank Stocks

AFKI Market Journal: 6 Fast-Growing, Reasonably-Priced African Bank Stocks

Banks are fantastic ways to invest in Africa’s growth. Lending as they do to a broad spectrum of borrowers, from government agencies to taxi cab owners, they give you exposure to nearly every facet of what makes an economy tick.

What’s more, African banks have generally been much more conservative lenders than their heavily leveraged American and European peers. You won’t find many exotic debt securities buried in their balance sheets. Instead, they keep it simple. They focus on taking in low-cost deposits and lending them out at big margins.

While they’ve been criticized for not making credit more accessible, the upside was that most African nations’ banking sectors (Nigeria being a notable exception) escaped the global financial crisis relatively unscathed. They were bastions of stability during a time that many Americans were beginning to believe their money was safer under the mattress.

So, this week I thought it might be interesting to see which of Africa’s fastest-growing banks trade at prices low enough to warrant further research. To do this, we will screen for companies that have grown earnings per share at more than a 15-percent annual rate over the past five years and can be bought for a price less than 15 times their most recent year’s earnings.

Here are six banks that fill the bill.

Capitec Bank Holdings (CPIJ.J) P/E Ratio: 13.6 EPS Growth (5-Year): 44.7%

This South African bank specializes in extending small loans to credit-worthy individuals. In spite of a fantastic earnings growth rate, it has fallen out of favor with investors recently due to fears that the South African consumer is overstretched. In its recently reported half-year results, management noted that the current environment is tough, but the bank still grew earnings per share at 20 percent over last year.

Ecobank Ghana (EBG.GH) P/E Ratio: 8.5 EPS Growth (5-Year): 32.5%

With operations in 33 African countries, Ecobank boasts a wider footprint on the continent than any other bank in the world. With a return on assets of 4.8 percent, its Ghanaian subsidiary is one of the hardest-working horses in its stable. The bank acquired a smaller competitor early last year which provided a big boost to its pool of small business clients.

Equity Bank (EQTY.NR) P/E Ratio: 9.8 EPS Growth (5-Year): 36.6%

One of Africa’s most dynamic banks, Equity Bank has established itself as a regional powerhouse by extending banking services to Kenya’s unbanked. Widely recognized as one of Africa’s best-managed banks, the bank has deployed innovative money transfer services, and opened a branch to cater specifically to an influx of Chinese business owners.

Ghana Commercial Bank (GCB.GH) P/E Ratio: 7.8 EPS Growth (5-Year): 34.2%

Ghana Commercial Bank operates 158 branches throughout Ghana, the country’s largest branch network. The government still owns a majority stake in the company, and, as such, a large portion of its assets are tied up in state-supported projects. This can cause problems, as it did when the country’s oil refinery had difficulty making good on its debt. But with that massive liability now restructured, Ghana Commercial Bank has posted impressive result after impressive result.

Standard Chartered Bank Ghana (SCB.GH) P/E Ratio: 10.7 EPS Growth (5-Year): 29.9%

The third in our trio of Ghanaian banks, Standard Chartered’s local subsidiary focuses on large-scale corporate lending. The strategy has served it well. Earnings have grown each of the past five years and its total assets increased 21 percent during the 2012 fiscal year. Now management is looking to expand its consumer banking operations in an effort to diversify income.

The Cooperative Bank of Kenya (COOP.NR) P/E Ratio: 8.2 EPS Growth (5-Year): 32.4%

Founded in 1968 by a collection of cooperative societies, this once sleepy bank has grown at a breakneck pace since listing on the Nairobi Securities Exchange in 2008. It now operates some 100 branches, 500 ATMs, full-fledged insurance, asset management, and stock-brokerage divisions. Regional expansion is also in the cards. Co-op Bank opened its first branch in South Sudan in July.

Interested in picking up some shares of these banks? Here are some guides to opening brokerage accounts in South Africa, Kenya, and Ghana.

Ryan Hoover is an investment analyst with Africa Capital Group and the founder of InvestingInAfrica.net. Contact him at ryan@investinginafrica.net.