Nigeria’s struggling economy – with its overvalued naira, shortage of US dollars and inflationary pressures on the back of fallen oil revenues – has led to a drop in foreign investment. But not all investors are fleeing the scene. Last month Cape Town-based asset management firm, Allan Gray, announced it had increased its stake in two Nigerian lenders, Zenith Bank and Access Bank. This is despite of the country’s banking sector being under stress, with the ratio of non-performing loans to total credit in Nigeria being over three times that of the global average.

According to Nick Ndiritu, who manages Allan Gray’s equity and bond funds for Africa (excluding South Africa), the firm has been investing in Nigeria since 2012 and actually sees more value in the country today than in the other markets it has invested in.

“We try not to get caught up with what you might call ‘popular sentiment’ – whether that is positive or negative.”

He noted that during 2013 and 2014, when oil prices were at their peak, there was a lot of hype around the Nigerian investment opportunity. “And we were a lot more cautious then because what tends to happen is that sentiment gets reflected in equity valuations… with valuations becoming very high.”

But today, with a lot less investor interest in the market, these valuations are much more attractive. And Ndiritu believes many of the fundamentals surrounding the country’s opportunity still exist – such as a large population with a growing consumer class. He argues that Nigeria’s macro-economic environment is also likely to improve as its oil revenues rise. The country has been severely affected by a downturn in the oil price, as well as fallen oil production due to attacks on pipelines in the Niger Delta.

“We think that Nigeria can get back to producing close to two million barrels a day and that the economy can adjust to the reality of a US$50-$60 per barrel oil price.”

Betting on top banks, not the entire sector

While the banking sector has been struggling, Access Bank and Zenith Bank are some of the better performers and could offer investors attractive returns.

“What the numbers are telling us now is banks like Zenith and Access Bank are trading at some of the lowest multiples we have seen, certainly over the last 10 years in terms of price-to-earnings or price-to-book,” he adds.

“They have adequate capital levels, they are fairly well managed, and they have a dominant market share… We think that these are businesses that are going to survive the current crisis.”

However, Ndiritu believes not all banks will be as lucky – and this could help both Zenith and Access increase their market share even further.

“The fewer banks that remain as the sector consolidates, the [more] the large banks are going to continue to do exceedingly well, because they will gain share in an economy that is still growing.”