Wednesday, September 06, 2017 / 11:14 AM /FBNQuest Research
Post roll-over to 2018, keeping Neutral rating
We have rolled over our price target for Stanbic IBTC (Stanbic) to 2018, increasing our target by 56% in the process to N39.2. Apart from the rollover effect, the other driver behind the marked uplift is a 17% average increase to our 2017-18E EPS forecasts. Although the bank’s Q2 2017 earnings missed our forecasts (PBT by 29%, PAT 44%), our earnings upgrade reflects the strength of the pre-provisions (and opex) result.
Going into H2, management is confident that loan loss provisions will ease because of recoveries from an oil and gas exposure which was classified as a result of its reliance on the Forcados pipeline; the pipeline was out of service for most of last year but is now operational again. Although our cost of risk estimate of 5.6% for 2017E is closer to the upper end of management’s guidance (4- 6%), the changes to our revenue estimates and the implied run-rate for cost of risk implies that the H2 quarterly PBT should be better than the N18.6bn the bank delivered in Q1.
And more importantly, Stanbic should deliver a full year ROAE of around 35%, significantly better than the overly conservative ROE guidance of 18-20%. Given the run the shares have had this year already, they are trading close to our new price target. As such, we retain our Neutral rating.
Negative surprises in provisions and opex weighed on Q2 PBT
Stanbic’s Q2 2017 PBT and PAT grew strongly, by 94% y/y and 169% y/y respectively. The results were driven by a 43% y/y growth in pre-provision profits. This growth was underpinned by an 80% y/y expansion in funding income and, to a lesser extent, a 17% y/y increase in non-interest income. The positives on these lines were strong enough to offset increases of 72% y/y and 18% y/y in loan loss provisions and opex respectively.
Further down the P&L, PAT grew by 169% y/y, thanks largely to a 43% y/y reduction on the minorities interest line. Compared with our forecasts, PBT and PAT missed by 29% and 44% respectively due to negative surprises in loan loss provisions and opex. Sequentially, the results showed a marked departure from the y/y trends. PBT and PAT declined by -43% q/q and -60% q/q respectively.
Loan loss provisions and opex which increased markedly by 219% q/q and 24% q/q underpinned the sequential decline in earnings. These negatives offset the 9% q/q increase in pre-provision profits. In terms of contributions from the revenue lines, funding income which grew by 17% q/q was the major driver. Non-interest income came in flattish on a q/q basis.
6. Stanbic IBTC renews its NGN100 billion Multicurrency Commercial Paper Programme with FMDQ
7. Stanbic IBTC Money market fund suffers highest weekly outflow since 2009
8. Stanbic IBTC Holdings PLC Appoints Mr. Basil Omiyi as New Chairman
9. Stanbic IBTC Launches ₦20.00bn Commercial Paper Programme on FMDQ
10. Stanbic IBTC Asset Management Consolidates Leadership Position
11. Stanbic IBTC Holdings Q1 2017 Results Review - Earnings Running Well Ahead of Guidance
12. Stanbic IBTC Holdings Reports Q1 2017 Results – NPL Ratio Doubled Between Dec ’16 and Mar ’17
13. STANBIC Releases Q1'17 Results; Declares N16.07bn PAT in Q1,(SP:N20.47k)