Monday, January 23, 2017/ 11.45 AM / FBNQuest Research
Improved fundamentals drive upgrade to earnings forecasts
Following the recent publication of Stanbic IBTC Holdings’ Q4 2015 – Q3 2016 results, we have updated our forecasts. The delay in the publication of the results made our previous forecasts redundant. The increase to our forecasts is significant.
We have increased our 2016-17E PBT forecasts by an average of 61% and our price target by 56% to N14.7 (having rolled over to 2017). The most significant positive is that Stanbic has drawn a line under the saga with the Financial Reporting Council (FRC).
The bank’s underlying results improved markedly in 2016 (based on the 9M 2016 results). Despite the delay in the publication of the results, the shares fared relatively well. Although they shed -9% in 2016, slightly worse than the ASI’s -6%, they ranked fifth in the sector, behind the top four tier 1 banks which all posted gains.
Looking forward, we forecast 10% average growth in PBT per annum over the 2017-18E period, with both revenue lines contributing. We expect loan loss provisions to moderate and offset rising opex.
We forecast faster PAT growth (31% in 2017E) due to favourable base effects (zero forecast for other comprehensive income vs –N4.4bn as of 9M 2016). Our forecasts imply ROAE improving from 14.4% in 2015 to over 16% in 2017E. Given the shares are trading above our price target, we retain our Underperform rating.
Double digit revenue growth over the 9M 2016 period
Stanbic reported its Q4 2016 – Q3 2016 results together. Broadly speaking, the results showed that after a weak 2015 in which PBT fell -46% y/y, the bank made marked improvements over the 9M 2016 period.
The 2015 results had been held back by a flattish revenue performance as well as a surge in loan loss provisions to almost N15bn from N3.2bn in the prior year. Stannbic’s 9M 2016 PBT of N25.7bnbn compares with N15.4bn in the prior year or a 67% y/y increase. Both net interest income and non-interest income contributed to the growth – 19% and 28% respectively.
Although loan loss provisions (+22%) and opex (+10%) grew also, the revenue growth was stronger, leading to the stellar PBT growth. The revenue growth follows a tepid 2015 during which net interest income fell -6% and non-interest income was down -3%.
The improvement in funding income was mainly down to a reduction in cost of funds by almost 200bps and a strong growth of almost 12% q/q in its loan book in Q3, while for non-interest income, the drivers were varied and not limited to fx-related gains only as the case was with some other banks.
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