Stanbic IBTC Holdings Q4 2017 Results Review: Downgrading to Underperform

Proshare

Tuesday, March 20, 2018 /10:25 AM / FBNQuest Research

8-10% cut to our 2018-19E EPS and price target
 
Stanbic IBTC Holdings’ (Stanbic) Q4 2017 PBT missed our forecast by 22% largely due to negative surprises on provisions and opex. Consequently, we have cut our 2018-19E PBT forecasts by around 8% on average and our price target by 10% to N39.8. Following a write down of c.N21bn in Q4 2017 and potential recoveries in 2018, management expects cost-of-risk to moderate to under 5% in 2018 from c.7% in 2017. 

We have adjusted our cost-of-risk forecast to 4.7%, to reflect management’s guidance. With a charge of 80% taken on its 9mobile exposure, we believe this is adequate and should prevent further surprises in 2018. Our funding and non-interest income growth forecasts in 2018E are similar – slightly over 10% y/y, partly reflecting a similar magnitude of loan growth, and, to some extent, base effects.
 

These growth rates underpin our 32% y/y PBT growth forecast for 2018E. At current levels, the shares are trading on a 2018E P/B multiple of 2.1x for 27.2% ROAE in 2019E or a premium to the 0.87x 2018E multiple for 14.2% ROAE that our universe of banks is trading on. Our forecasts imply a 2018 ROAE of 29.5%. Having gained 18% year-to-date (vs. 9.4% NSE ASI) our valuation implies a downside potential of -19% from current levels. As such, we downgrade our rating on the shares to Underperform from Neutral.
 

PBT up 35% y/y due to stellar y/y growth in non-interest income
 
Stanbic’s Q4 2017 results showed that PBT of N15.5bn grew by 35% y/y while PAT came in at N14.2bn, up 25% y/y. Both revenue lines were up, but the non-interest income result was the more striking of the two, increasing by a stellar 63% y/y to N24.9bn. Funding income managed a 10% y/y growth to N20.6bn. 

Loan loss provisions also increased, by 16% y/y, but this increase was surpassed by that of revenue growth. A higher tax rate (31% vs 27.4% a year ago) explain the slower growth in PAT relative to PBT.
 

Q/q movements were modest across the P&L, except for the other comprehensive income (OCI) line where the N4.1bn reported compare with N323m in Q3. Compared with our estimates, while the PBT missed by 22%, PAT was in line thanks to the OCI result. The results were broadly in line with consensus.
  

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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