Monday, October 30, 2017 3:55PM / FBNQuest Research
Event: Diamond Bank reports Q3 2017 results
Implications: Downward revisions to consensus PBT forecasts and negative reaction from the market likely
Positives: Limited to OCI gains
Negatives: The bank reported pre-tax and after-tax losses of -N4.1bn and -N2.3bn respectively
Diamond Bank’s (Diamond) Q3 2017 results which were published this afternoon came in weaker than expected. The bank reported a pre-tax loss of -N4.1bn, slightly lower than the –N6.6bn that it reported in Q3 2016. The pre-tax loss was mainly driven by a -7% y/y decline in pre-provision profits. Although both revenue lines contributed to the y/y decline in pre-provision profits, non-interest income which fell by -18% y/y was the major driver.
The y/y decline in non-interest income was primarily underpinned by a -72% y/y decline in fx trading income in 9M 2017. Funding income was also down slightly by -2% y/y. The negatives on these lines completely offset a -30% y/y reduction in loan loss provisions. Further down the P&L, the after-tax loss narrowed to -N2.3bn, thanks to a tax credit of N693m and a positive result of N1.2bn in other comprehensive income.
Sequentially, the results showed marked q/q declines on key headline items. The pre-tax and after-tax losses of –N4.1bn and -2.3bn showed wide variance from the PBT and PAT of N5.2bn and N5.8bn that the company reported in Q2 2017. Compared with our forecasts, both PBT and PAT diverged widely from the (profits of) N3.1bn and N2.6bn that we had modelled for both lines respectively. The variance between our forecasts and the actual results was driven by negative surprises on both revenue lines. To a lesser extent, provisions came in around 6% higher than we had modelled.
Diamond’s 9M 2017 PBT of N6.7bn tracks well behind consensus 2017 PBT forecast of N15.8bn. As such, we expect to see marked downward revisions to consensus 2017 PBT and a negative reaction from the market.
Diamond Bank has underperformed the market year-to-date. Ytd the shares have gained 16% compared with a 36% return on the index.
We rate the shares Neutral. Our estimates are under review.
Diamond Bank Q3 2017 results vs. FBNQuest Research estimates
Source: Company data, FBNQuest Research estimates
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