Friday, August 17, 2018 /1:30PM/Vetiva Research
PAT beat estimate despite lower run rate
Loan portfolio up 19% q/q in Q2’18 – deviating from industry trend
Loan loss provision estimate cut following H1 write back
Board of Directors proposed an interim dividend per share of ₦1.00
TP revised to ₦50.07 (Previous: ₦42.38)
PAT beat estimates despite moderating q/q run rate
STANBIC released its H1’18 results, posting strong y/y performance following another impressive quarter. Although the run rate recorded in Q2’18 marginally lagged performance from the earlier quarter, H1’18 earnings still came in largely ahead of our estimate as PAT rose 79% y/y to ₦43.1 billion – better than our ₦36.9 billion estimate. Notably, Gross Earnings came in flat q/q at ₦57 billion as a modest 3% q/q rise in Interest Income offset a 6% moderation in Non-Interest Income.
We highlight that this trend deviates from the trend we have observed across other banks in Q2’18. Amidst the sticky interest rate environment as well as negative loan growth in the industry, Interest Income has declined mildly across most banks whilst improving business activities have supported Non-Interest Income. However, STANBIC grew its loan book by 19% in Q2’18 standalone – taking ytd loan portfolio to 8% growth. Furthermore, with customer deposits down 1.3% in Q2’18, Interest Expense moderated to ₦9.1 billion within the quarter (Q1’18: ₦10.7 billion) – translating to ₦19.8 billion for the H1’18 period.
Maintaining the trend observed in Q1’18, STANBIC recorded an additional net recovery of ₦394 million in Q2’18 on previously written off loans. Consequently, the Group recorded a cumulative net loan loss write back of ₦5.5 billion for H1’18 vs. our estimated loan loss provision of ₦3.9 billion and the ₦14.0 billion recorded in the prior year. With this, Operating Income rose 48% y/y to ₦99.5 billion – 4% ahead of our ₦95.4 billion estimate. Overall, despite a 28% y/y rise in Operating Expense to ₦48.8 billion (Vetiva: ₦49.8 billion), PAT rose by an impressive 79% y/y to ₦43.1 billion – beating our ₦36.9 billion estimate. The Board of Directors proposed an interim dividend per share of ₦1.00 – translating to an interim dividend yield of 2%.
TP revised to N50.07 (Previous: N42.38)
We have revised our estimates to reflect the miss across key line items. Particularly, we note that quarterly earnings run rate moderated marginally in Q2’18 following a much lower loan write back within the period vs. Q1’18. Following the strong growth observed in Q2’18, we revise our loan growth forecast for FY’18 to 10% (Previous: 0%). Hence, our Interest Income estimate is largely unchanged at ₦130 billion despite the H1’18 miss. Similarly, our Non-Interest Income is maintained at ₦108.4 billion – in line with H1’18 run rate.
However, we cut our loan loss provision to a mild ₦1.3 billion – a relatively cautious stance given the ₦5.5 billion write back so far in H1’18. With Operating Expense also left relatively unchanged at ₦97.7 billion, we raise our PAT estimate to ₦79.2 billion (Previous: ₦73.7 billion), translating to an EPS of ₦7.88. With average industry leading RoE and RoA of 36.2% and 5.6% respectively, STANBIC trades at FY’18 P/B: 2.1x and P/E: 6.3x vs. our coverage banks’ average P/B: 0.7x and P/E: 3.8x. Overall, we raise our Target Price (TP) to ₦50.07 (Previous: ₦42.38).