Monday, April 16, 2018 /03:30PM / Vetiva Research
• Earnings in line with estimates, EPS up 69% y/y
• FY’17 DPS of N1.10 (cumulative) vs. Vetiva estimate of ₦1.04
• Impressive loan and deposit growth, up 5% and 34% y/y respective/y
• TP revised upward to #39.84, SELL rating maintained
Top and bottom line beat estimates, significantly higher y/y
STANBIC released its FY’17 results earlier with most line items coming in largely in line with our estimates. Maintaining earlier quarters’ run rate, Gross Earnings rose 2% q/q, leading to a 36% y/y growth for the FY’17 period - 3% ahead of our estimate. The impressive top line performance was supported by robust growth in both Interest and Non-Interest Income – up 41% and 31% y/y respectively. We note that whilst Personal & Business Banking and Corporate & Investment Banking segments continue to account for a bulk of Interest Income, earnings from the Wealth business and other non-banking subsidiaries remain supportive of Non-interest income. Importantly, we highlight the strong deposit growth recorded over the year, with Customer Deposits up 34% y/y – a trend we expect to support credit growth in 2018. Consequently, Interest Expense rose 33% y/y to ₦39.3 billion, coming marginally ahead of our ₦38.3 billion estimate.
With this, Net Interest Income was up 44% y/y to ₦83.6 billion – in line with our estimate. Deviating from the trend observed across most of the banks’ that have released FY’17 results so far, loan loss provision moderated 18% q/q in Q4’17 to bring FY’17 provision to ₦25.6 billion – 11% better than we had expected. Consequently, Operating Income was up 39% y/y to ₦147 billion, beating our ₦139 billion estimate. However, with Operating Expense up 25% y/y to ₦86 billion – following an 8% q/q rise in Q4’17, PAT came in marginally ahead of our estimate at ₦48.4 billion – up 70% y/y. The Board of Directors proposed a final dividend of ₦0.50 – taking FY dividend to ₦1.10 and translating to a dividend payout ratio of 23% and a yield of 2%.
TP revised higher, Sell rating maintained
We have updated our model and revised our forecasts to reflect the positive result and mild deviation around a few line items. We believe the impressive balance sheet growth in FY’17 presents a strong platform for growth in 2018. Consequently, we forecast loan growth of 10% for FY’18 amidst improving risk environment. Also, we expect earnings from the market-leading subsidiaries to continue to support top line with Non-Interest Income contributing 42% to Gross Earnings. Despite our expectation of moderating interest rate in the near to medium term, we estimate a mild 3% y/y rise in Interest Expense due to accretion in customer deposits.
We remain wary of the bank’s asset quality and estimate a loan loss provision of ₦23.7 billion for FY’18 – translating to a Cost of Risk of 6.1%. With OPEX growth expected to match Income growth, we expect efficiency to stay stable with a Cost to Income ratio of 50%. Overall, we forecast a strong 24% y/y growth in PAT to ₦59.8 billion, translating to an EPS of ₦5.95. With this, our earnings forecast translates to average ROE and ROA of 27.8% and 4.1% respectively. STANBIC trades at FY’18 P/B: 2.2x and P/E: 8.2x vs. our coverage banks’ average P/B: 0.9x and P/E: 4.9x.