Thursday, April 28, 2016 5:51PM/ FBNQuest Research
Event: Diamond Bank reports Q1 2016 results
Implications: Muted reaction likely from the market
Positives: Strong non-interest income growth of 39% y/y
Negatives:, up 36% y/y, came in 30% higher than we expected
Following on from the disappointing Q4 2015 results which Diamond published yesterday, the Q1 2016 results have just been released. They show that both PBT and PAT fell by double digits, -20% y/y for PBT and -37% y/y for PAT. The main driver behind the declines, similar to the trend we saw in Q4, was loan loss provisions. They grew 36% y/y, offsetting what was a modest (1% y/y growth) but satisfactory performance in profit before provisions as well as a slight decline of -1.2% in operating expenses.
Although the tax burden also declined, the magnitude in percentage terms was similar to that on the PBT line, thereby limiting its impact. The PAT showed a greater decline because of base effects: Diamond had recorded a strong positive result on the other comprehensive income line in Q1 2015 (N2.1bn).
This year, it managed just N28m, implying a marked -99% y/y fall. Returning to the profit before provisions line, the 1% y/y growth was largely on the back of a strong performance in non-interest income: it grew 39% y/y to N39.4bn. This is rather unusual; as such, we would be looking for management to provide some clarification.
The strong performance in non-interest income completely offset a -12% fall in funding income. Sequentially, the comparisons are not very meaningful given the significant provisions that Diamond booked in Q4 2015.
Relative to our forecasts, the results were better than expected. PBT was ahead by 36% while PAT beat by 40%. The main driver behind the positive surprise was non-interest income which exceeded our forecast by 42%, more than making up for a negative surprise of 5% on the funding income line, as well as a significant negative surprise of 30% on the provisions line.
Given how recent the Q4 2015 results are, we do not expect the market to pay too much attention to these Q1 2016 results. The fact that loan loss provisions are still relatively high and grew markedly y/y in Q1 will weigh on sentiment, more than the positive surprise on the non-interest income line. As such, we expect a muted reaction from the market to these results. The shares were down -4.7% today (vs +0.6% for the ASI).
We rate the shares Underperform. Our estimates are under review.
Diamond Bank Q1 2016 results vs. FBNQuest estimates