Thursday March 07, 2019 / 10:40 AM / NSE With Additional Notes From CSL Stockbrokers
Initial Reaction – CSL Stockbrokers
Stanbic FY 2018 results showed a 5% y/y growth in Gross Earnings to N222.4bn, albeit it came below our 2018 estimate of N234.5bn. Buoyed largely by the growth of 15% y/y in Non-interest income and write-backs from loans previously written off, Pre-tax Profit grew 44% y/y to N88.2bn. However on a q/q basis, gross earnings fell marginally by 2% to N53.5bn on the back of a 13% q/q decline in Non-interest Revenue which offset the growth of 8% q/q in Net-Interest Income.
Interest Income declined slightly by 4% y/y to N118.4bn in FY 2018, on the back of a 14% y/y decline in Interest on investments during FY 2018 which offset the growth of 5% y/y in Interest on Loans and Advances (the firm grew its loan book by 14% y/y during FY 2018).
Interest expense rose marginally by 2% y/y to N40.1bn in FY2018, driven by increase in deposits from customers (+7% y/y). This coupled with the marginal decline in Interest Income led to a 6% y/y decline in Net Interest Income to N78.2bn, coming in below our 2018 estimate of N86.2bn.
The firm sustained growth in Non-Interest Income, up 15% y/y to N120.6bn on the back of higher Net Fee and Commission Income which grew 18% y/y to N69.8bn and a growth of 7% y/y to N31.3bn in Trading Income. Similarly, higher fees from asset management (+21% y/y), brokerage and financial advisory (+22% y/y) and custody transactions (+30% y/y) buoyed Fee and Commission Income.
The bank Capital Adequacy Ratio (CAR) of 21.0% (FY 2017: 20.5%) remains strong and well above the regulatory requirement of 10%.
The bank reported positive Impairment charge of N2.9bn compared to negative N25.6bn in FY 2017 owing to write-backs.
Operating Income grew 5% y/y to N180.8bn, supported largely by the growth of 15% y/y in Non-Interest Income which partly offset the decline in Net Interest Income (-6% y/y) and the mild growth of 2% y/y in Interest Expense.
Operating Expenses however grew by 11% y/y to N95.6bn. This, coupled with a single digit growth of 5% y/y in Operating Income led to a 308bps expansion in Cost to Income Ratio (CIR ex provisions) to 52.9%, underperforming our 2018 estimate of 50.5%.
Despite the rise in Operating Expenses, Pre-tax Profit grew remarkably by 44% y/y to N88.2bn while Profit after tax grew faster by 54% y/y to N74.4bn, owing to lower effective tax rate of 15.6% compared to 20.9% in FY 2017. Consequently, EPS also grew by 53% y/y to N7.04 in FY 2018 from N4.60 in FY 2017.
The company has proposed a final dividend of N1.50/s in 2018 subject to approval at the AGM. The final dividend represents an increase of 200% from the N0.50/s declared in 2017. The company had earlier declared an interim dividend of N1.0/s, bringing the total dividend for 2018 to N2.50/s. Based on its last closing price of N46.6 on 6 March 2019, the final dividend translates to a dividend yield of 3.2%.
We have a target price of N65.7/s for Stanbic (current price: N46.0) with a Buy recommendation.