Diamond Bank's Q2 2015 leads to cuts to EPS and price target, rated NEUTRAL


Tuesday, July 28, 2015 9:50 AM / FBN Capital Research

Slight cuts to EPS and price target; Neutral rating maintained: Following its Q2 2015 results which showed that PAT declined by 13% y/y, Diamond Bank (Diamond) cut its 2015 ROE by 400bps to 11%. A more conservative loan growth outlook of 5% y/y (vs 10% y/y previously) and a spike in opex are among the major drivers behind the subdued ROE expectation.

Regardless, our cost of risk and NPL ratio forecasts of 3.4% and 7.0% are slightly worse than management’s guidance of 3.0% and 5.0% respectively and imply a slightly lower ROE of 10.8%.

Given our more modest expectations, we have reduced our 2015-16E EPS forecast by around 9% on average and our price target by 7% to N5.1. Having shed 29% ytd (vs. -11% NSE ASI), our new price target implies a potential upside of 28% from current levels. On a relative basis, Diamond Bank shares are trading on a 2015E P/B multiple of 0.4x for 9.4% ROAE in 2016E, or a discount to the 0.7x multiple that our universe of banks is trading on. We rate the shares Neutral.

Teens y/y decline in profits: Diamond Bank’s Q2 2015 PBT and PAT declined by -15% y/y and –13% y/y to N5.8bn and N5.1bn respectively on the back of a 62% y/y spike in loan loss provisions and, to a lesser extent, a 9% y/y rise in opex. These more than offset a 9% y/y increase in profit before provisions. Further up the P&L, although both income lines contributed to the growth in pre-provision profits, non-interest income (+19% y/y) was the stronger of the two lines.

Given that Diamond’s loan book shrunk by 2% q/q, we believe that funding income most likely benefitted from a combination of higher yields on earning assets and a 3% q/q decline in customer deposits. Sequentially, PBT and PAT declined by -30% q/q and -44% q/q mainly because non-interest income declined by -5% q/q while opex grew by 12% q/q.

Compared with our forecasts, PBT and PAT missed by between 23% and 25%. Non-interest income, which came in 18% behind our forecast, was the major driver behind the weaker-than-expected result.

Recommendations and movements in price target


Related News

1.       DIAMONDBNK Records Decline in Both Pre-tax and After-tax Profits

2.      DIAMONDBNK Declares N12.2 billion PAT in Q2'15 Result,(SP:N3.90k)

3.      Diamond Bank rated Neutral, 62% spike in loan loss provisions in Q2 2015 results

4.      CLICK HERE TO VIEW FULL RESULTS – Jul 24, 2015

5.      DIAMONDBNK Formation of rounding bottom pattern is in demand

6.      Diamond Bank Roller coaster moves are ongoing

7.      Diamond Bank Bulls are setting up the bench mark

8.   DIAMONDBNK Q1 2015 Financial Result Overturns Rating to Neutral

Related News