Friday, July 28, 2017 2:45 PM / FBNQuest Research
Event: Diamond Bank reports Q2 2017 results
Implications: Muted reaction by the market likely
Positives: PBT grew 37% y/y
Negatives: Opex grew 13% y/y
Diamond Bank’s Q2 2017 results which have just been published show that PBT of N5.2bn grew 37% y/y while PAT of N5.8bn fell -45% y/y. The latter can be explained by significant negative base effects stemming from a material positive result on the other comprehensive income (OCI) line in Q2 2016.
The PBT result was driven by a combination of a healthy 11% y/y growth in profit before provisions and a -5% y/y decline in loan loss provisions. These more than offset a 13% y/y rise in operating expenses. Of the two revenue lines, funding income was the driver behind the growth, increasing 22% y/y; in contrast, non-interest income fell -13% y/y.
Again, negative base effects were at work here. Diamond had enjoyed very strong fx trading income in Q2 2016 which was absent this time round. Sequentially, the changes were modest and limited to single digits on key headline items.
Compared with our estimates, both PBT and PAT surprised positively. However, it was the PAT line that showed the greatest divergence at 43%. This was because we did not forecast any OCI gains; the bank reported N1.3bn. The PBT beat by a modest 8% in comparison.
This was mainly due to lower-than-expected loan loss provisions: N9.7bn vs our N12bn forecast. The provisions were also lower by 8% q/q. This positive surprise on the provisions line covered up a slight shortfall on the revenue line: while net interest income was in line with expectations, non-interest income was behind by 7%.
The key takeaway from these results by the market is likely to be that there was no major negative surprise. Although operating expenses grew 13% y/y, they were only 3% higher than we were expecting. Notwithstanding, we doubt that consensus full year PBT forecast of N16bn will change materially, despite being below the run-rate implied by the N10.8bn H1 2017 result. This is because the market will expect loan loss provisions to be higher in H2 compared with H1 as has been the case historically with Diamond. As such, we expect a slightly muted reaction by the market to these results.
Ytd, the shares have gained 46% vs the ASI’s 39%. We rate the shares Neutral. Our estimates are under review.
Diamond Bank Q2 2017 results vs. FBNQuest Research estimates
1. DIAMONDBNK Declares N9.32 billion PAT in Q2'17 Result,(SP:N1.33k)
Ms. Genevieve Sangudi Resigned as a Non-Executive Director of Diamond Bank Plc
Diamond Bank Q4’16 and Q1’17 Results Review - Upgrading to Neutral Post Sell-off
4. Diamond Bank Plc FY 2016 and Q1'17 Conference Call & Earnings Presentation - The Key Takeaways
Diamond Bank Plc – Funding Income Up by 25% YoY in Q1 2017
Diamond Bank Plc - Weak YoY Performance Beat Estimates
DIAMONDBNK Declares N4.81 billion PAT in Q1 2017 Results,(SP:N0.82k)
Diamond Bank Q4 2016 Results – Loss After Tax Largely Driven by a Negative Result on the OCI Line
DIAMONDBNK Declares N3.49 billion PAT in 2016 Audited Result,(SP:N0.95k)
10. Diamond Bank Ratings Affirmed - Ratings Removed from CreditWatch Negative; Outlook Negative
11. Diamond Bank Plc - Earnings Sink on Higher Loan Loss Expense
12. Diamond Bank Plc Records Both Pre & Post-tax Losses in Q3'16 Results Despite N2.4bn OCI Gains