AFRINVEST retains ACCUMULATE rating on ETI; improves top and bottom lines in H12013


Thursday, August 1, 2013/ Afrinvest

Ecobank Transnational Incorporated ("ETI" or "the Group") Plc recently released its unaudited H12013 results on the floor of the Nigerian Stock Exchange. Below are the key highlights of the result;

•ETI performed impressively in H12013, with significant improvements in both top and bottom line results. The 2012 consolidation of the group and the acquisition of Oceanic Bank has boosted the bank into the Tier-1 sphere of the Nigerian banking space and it continues to enjoy benefits of the inorganic expansion strategies of the group.

•Consistent with the positive trend in our projections, top line grew 19.4% to N195.3bn (60.1% of our N325.2bn FY2013 projection), while bottom line grew 94.2% to N26.9bn in H12013 (45.7% of  our  N58.9bn FY2013 projections. This growth was achieved despite a 64.3% increase in loan loss expense. This increase can be attributed to performances in Net Interest Income (20.3% Y-o-Y growth) and other operating income (27.0% Y-o-Y growth). The Nigerian operations continue to drive the group's activities (43.0% of total revenue), followed by Ghana. Noticeable improvements can also be observed in other regional African countries i.e. Southern and Central African region, while the East Africa region was dampened by results from Kenya.

•The Group's Cost to Income ratio (CIR) moderated by 3.1% from 58.1% in H12012 to 55.0% in H12013 compared to 72.0% recorded for FY2012 (59.8% FY2012 Tier-1 average). This brings to fore the Group's conscious effort to curtail its cost in the near term. The recent  inorganic expansion strategy (acquisition of Oceanic Bank) of the bank significantly grew the bank's loan and deposit.

•The Group's customers' loan to deposit ratio grew 3.0% from 63.0% to 66.0% in H12013 on the back of a 24.0% increase in loans and advances to customers (N1.6tn from N1.3tn), a marginal reduction in loans to banks, and an 18.0% growth in deposits to N2.4tn. As a result, the Group also succeeded in growing its total assets by an impressive 15.0% from N2.9tn to N3.3tn. A further breakdown on ETI's total assets reveal 49.0% investment in government securities  (N144.0bn to N292.8bn in H12013) considering the tax exemption and relative high interest rate environment. However, this revenue lines are likely threatened within the next few quarters should yields on government securities heads south as widely projected.

•The increased loan to deposit ratio and improved CIR is indicative of the gradual synergies of the recent acquisition of Oceanic Bank and an improvement in the bank's asset quality. We remain optimistic in the medium to long term on the prospects of ETI based on its diversified business model and the expected economics of scale. The aggressive expansion in the South, West and Central part of Africa buttressed our positive outlook.

•Based on this H12013 result, ETI trades at a trailing P/E of 3.6x (based on its N4.04 trailing EPS ), significantly lower than the 4.2x it reported in FY 2012. The group currently trades at 0.6x P/BV; thus, using a blend of DDM and FCF models, we retain our N17.86 12-months target price. This implies a 22.3% upside relative to the 14.60 market price as at July 31, 2013. In this view, we retain our ACCUMULATE rating in the short term.


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