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Diamond Bank Plc - Best Foot Forward in H1 Still?

Proshare

Friday, August 04, 2017 10:25AM / FBNQuest Research

2017 full year PBT guidance of N20bn unchanged
Diamond Bank’s underlying Q2 2017 results were not significantly different from our forecasts. Notwithstanding, a modest increase to our funding income forecast and a trimming of our loan loss provisions forecast explain the 31% increase to our 2017E full year PBT forecast to N16bn.


Our PBT forecast remains below management’s guidance of N20bn which was reiterated on the earnings conference call yesterday. At this stage last year, Diamond had delivered a PBT similar to H1 2017’s N10.8bn but ended the full year with N5bn due to losses in Q3 as a result of higher-than-expected provisions.


The difference between our 2017E full year PBT forecast and management’s guidance is the cost of risk, for which we forecast 4.7% vs guidance of 4%.   We have also rolled over our valuation to 2018. These changes led to the 25.8% increase in our price target to N1.52. From current levels, we see upside potential of 18.6%. We retain our Neutral rating
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37% y/y growth in PBT
Q2 2017 PBT of N5.2bn grew 37% y/y while PAT of N5.8bn fell -45% y/y. The latter can be explained by significant negative base effects stemming from a material positive result on the other comprehensive income (OCI) line in Q2 2016. The PBT result was driven by a combination of a healthy 11% y/y growth in profit before provisions and a -5% y/y decline in loan loss provisions.


These more than offset a 13% y/y rise in operating expenses. Of the two revenue lines, funding income was the driver behind the growth, increasing 22% y/y; in contrast, non-interest income fell -13% y/y. Again, negative base effects were at work here. Diamond had enjoyed very strong fx trading income in Q2 2016 which was absent this time round.


Sequentially, the changes were modest and limited to single digits on key headline items. Compared with our estimates, both PBT and PAT surprised positively. However, it was the PAT line that showed the greatest divergence at 43%. This was because we did not forecast any OCI gains; the bank reported N1.3bn.


The PBT beat by a modest 8% in comparison. This was mainly due to lower-than-expected loan loss provisions: N9.7bn vs our N12bn forecast. The provisions were also lower by 8% q/q. This positive surprise on the provisions line covered up a slight shortfall on the revenue line: while net interest income was in line with expectations, non-interest income was behind by 7%
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