Nigeria banks have been upgraded by ABSA which issued higher share price targets for top-tier banks—Zenith Bank, UBA, and Access Holdings—reflecting an increased positive sentiment from reforms and a drop in the cost of equity.
The Cost of Equity is the return a bank must offer investors to compensate for the risk of holding its stock. ABSA’s decision to lower the Cost of Equity (by as much as 4.7ppts), implies that the overall risk associated with investing in these Nigerian institutions is lower now than before.
This reduction in risk is a direct result of the banks successfully navigating regulatory hurdles and enhancing capital buffers.
When the cost of equity (the discount rate used in valuation models like Discounted Cash Flow) decreases, the resulting Net Present Value (NPV) and target share price increases.
ABSA thus maintained an Overweight rating on Zenith Bank (FY25F price to book P/B of 0.5x; Price Target PT up 55% to NGN96.84), UBA (FY25F P/B of 0.4x; PT up 17% to N52.19) and Accessco (FY25F P/B of 0.3x; PT up 15% to NGN31.46).
ABSA however downgraded GTCO to Equal Weight on a relatively lower upside (FY25F P/B of 0.9x; PT up 16% to N99.02) and maintained an Underweight rating on Stanbic IBTC, which screens as expensive (FY25F P/B of 1.5x; PT up 56% to N96.30).
ABSA Investment Case
Zenith Bank – Overweight at PT of N96.84
ABSA maintains an Overweight rating on Zenith Bank and raised its PT from N62.67 to N96.84. The new PT implies an upside of 61%. This, added to the forward dividend yield of 9.2%, implies a total return of 70%.
Funded income is expected to remain strong as seen in 9M 2025 net interest margin (NIM) of 11.4%, gradually easing to 8.9% in FY 2028F. Swaps/derivatives income, though weaker y/y was robust and could continue to supplement net interest income (NII).
UBA Plc– Overweight at PT of N52.19
ABSA maintains an Overweight rating on UBA and raised its PT from N44.65 to N52.19. The new PT implies an upside of 43%. This, added to the forward dividend yield of 16.5%, implies a total return of 60%.
It remains the most geographically diversified bank in our coverage, with Rest of Africa contribution to FY24A group PBT at 51%, higher than Nigeria’s contribution of 35%.
ABSA expects FY25F derivative losses to decrease significantly on reduced outstanding swaps.
It also likes UBA’s low funding costs, which are the second lowest in its coverage, just after GTCO. UBA’s 1H25A CAR 2 of 37.1% will be boosted by the N157bn second tranche of its rights issue programme. This excess capital position could see a significant increase in capital returns to shareholders.
Access Holdings Price Target (PT) N31.46
ABSA maintains an Overweight rating on Access Holdings and raises its PT from N27.25 to N31.46, boosted largely by the 4.2 percentage points (ppts) decline in cost of equity. The new PT implies an upside of 49%.
This, added to the forward dividend yield of 9.5%, implies a total return of 59%.
The non-payment of an interim dividend in Half Year 2025 coupled with the delayed release of the 1H results, as well as the imposition of capital gains tax has seen the stock de-rate significantly in 2H25F.
According to management, the delayed publishing revolved around approval from the CBN to pay the interim DPS with the bone of contention being the lower Holdco paid-up capital relative to that of the combined subsidiaries.
We believe this resolves with additional capital and entering the consolidation phase. The cost of funds declined significantly in 2H25F, boosted by a surge in retail deposits – if sustained, this will help address Accessco’s low NIMs relative to peers.
GTCO – Equal Weight at PT of N99.02
ABSA downgraded GTCO to Equal Weight but raised its PT from N85.10 to N99.02. The new PT implies an upside of 15%. This, added to the forward dividend yield of 11.6%, implies a total return of 27%.
Fundamentally, ABSA likes GTCO’s low-cost funding base that underpins its NIM and RoAE leadership.
However, the stock rallied hard after its LSE listing in July 2025 and ABSA says it will struggle to get much upside from its Gordon Growth model that employs a sustainable RoAE of 25.1% and CoE of 21.85%.
GTCO’s Half Year 2025 capital adequacy ratio CAR 2 of 36.2% will be boosted by the N160bn raised in the second tranche on the LSE.
Management hinted at a higher dividend per share (DPS) for FY25F in the 1H25A investor call.
Stanbic IBTC – Underweight at PT of N96.30
ABSA retained its Underweight rating on Stanbic IBTC but raised the PT from N61.59 to N96.30, boosted largely by the 4.2ppts decline in cost of equity.
The new PT implies a downside of 8%. This, added to the forward dividend yield of c.6%, implies a total return of -2%.
ABSA says Stanbic’s valuation at a premium to the sector is unwarranted, in its view.
While they expect its FY25F and FY26F RoAEs to top the sector, the normalisation of interest rates coupled with a relatively higher dependency on wholesale funding significantly trims its Through the cycle (TTC) NIM and RoAE.
Tailwind from Nigeria Reforms
ABSA notes that Naira stability supported by an improved FX reserves position would address capital repatriation concerns and encourage foreign investor participation.
Nigeria also maintains its Frontier Markets status in various global indices. The CBN’s orthodox and predictable monetary policy coupled with benign regulatory risk is a positive.
The positive momentum, or “tailwind,” comes directly from the aggressive economic and banking sector reforms championed by the Central Bank of Nigeria (CBN).
FX Market Stability: Reforms aimed at stabilizing the exchange rate and attracting Foreign Portfolio Investment (FPI) reduce the volatility that has historically penalized Nigerian stocks. Stable FX markets allow banks to better manage their foreign currency assets and liabilities.
Recapitalization Success: All three banks (Zenith, UBA, and Access) have demonstrated significant progress toward meeting the CBN’s stringent new capital requirements, bolstering their Capital Adequacy Ratios (CAR). This reinforces investor confidence in their stability and capacity for future lending.
Improved Earnings Quality: Reforms that push for increased transparency and diversification have helped these banks maintain strong profitability, even with higher operating costs.
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