SKYEBANK Non-Interest Income Grows by 126% YoY in Q4'14; Rated UNDERPERFORM


Thursday, May 15, 2015 5:44 PM / FBN Capital Research

Event: Skye Bank reports Q4 2014 results

Implications: Market’s reaction likely to be negative

Positives: Non-interest income up 126% q/q

Negatives: Skye reported a pretax loss of N1.9bn in Q4 2014; PAT declined 53% y/y

Skye Bank’s Q4 2014 results which were published this afternoon showed a pre-tax loss of -N1.9bn. (We are assuming that the figures published reflect recently acquired Mainstreet Bank). Despite the pre-tax loss, PAT came in positive at N4.0bn but declined by 53% y/y. A gain of N4.2bn on the other comprehensive income (OCI) line together with a tax credit of N1.7bn were the drivers behind the positive PAT.

Further up the P&L, profit before provisions grew by 14% y/y to N25.4bn. The growth on this line was driven by a 33% y/y growth in funding income. In contrast, non-interest income declined by 4 y/y. However, the y/y growth in pre-provision profits was not enough to offset a 56% y/y and 59% y/y rise in loan loss provisions and opex respectively.

Sequentially, the pre-tax loss of N1.9bn compared with a PBT of N5.1bn in Q3 2014. Thanks to the OCI gain and tax credit of N4.2bn and N1.7bn respectively, PAT came in flattish q/q. Compared with our estimate of N7.0bn, the pre-tax loss surprised negatively while PAT came in 39% below our N6.6bn forecast. The negative surprise in profits was driven by profit before provisions (-19% vs our est.) and a loan loss provisions (382% higher than we were expecting).

On a full year basis, Skye’s PBT and PAT declined by 47% y/y and 32% y/y respectively.  While the PBT missed our forecast by 46%, the difference on the PAT line narrowed to 16% because of the positive result on the OCI line and a lower effective tax rate of 7% compared with the 15.0% tax rate that we were modelling. The results also came in behind consensus 2014 PBT and PAT forecasts of N16.2bn and N13.7bn respectively. Although the bank did not declare a cash dividend, it has proposed a bonus of 1 for 20.

The results imply an ROAE of 10.9%, confirming our view that the management’s ROAE guidance of 15% for the full year was aggressive. Although the shares shed 9% today, we would not be surprised to further sell-off over the next few days given the weak results. The shares have shed 18% ytd, compared with the -0.7% return on the All Share Index.

Our estimates are under review. We rate Skye Bank shares Underperform. 

Skye Bank Q4 2014 results vs. FBN Capital estimates

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