STANBIC Rated Underperform After the Release of 2015 Half Year Result



Thursday, July 09, 2015 3:09pm / FBN Capital Research   


Event: Stanbic IBTC Holdings reports Q2 2015 results

Implications:  Downward revisions to consensus 2015 PBT forecast likely

Positives: Interest income grew 30% y/y

Negatives: Weakness in non-interest income and provisions led to PBT falling by 57% y/y


This afternoon, Stanbic IBTC Holdings (Stanbic) published Q2 2015 results which showed that PBT fell markedly by -57% y/y to N4.7bn. The weakness was driven by a -7 y/y decline in profit before provisions and a significant increase in loan loss provisions to N4.0bn. To a lesser extent, a 5% y/y growth in operating expenses also contributed.


Specifically, the weakness in pre-provision profit was due to a -14% y/y reduction in non-interest income. As for the funding income line, it grew marginally by 2% y//y to N11.4bn. The weakness on the non-interest income line is significant because historically, it is been a strong revenue driver for Stanbic.


The softness on this line was primarily driven by a 14% y/y decline in trading related fees which is evident from the macro-driven weakness in the capital markets. Recall that Q1 2015 provisions had surprised negatively.


Management stated at the time that this was mainly due to two oil and gas and power exposures. It guided to a cost of risk of less than 1.5% for the year. The Q1 and Q2 2015 results imply that the cost of risk ytd is closer to 4%, much higher than the guidance implies.


The risk here is that the asset quality situation is worsening faster than the bank expects, and expanding into other sectors. We would not be surprised to discover that retail/SME exposures are contributing.  


Further down the P&L, the y/y decline on the PAT line narrowed to -43% y/y, thanks to a tax credit of N759m and a positive N800m other comprehensive income result.


Sequentially, although PBT was down by -2% q/q, PAT was up by 9.2% mainly because of the tax credit. Compared with our forecasts, PBT missed by 47% largely because of negative surprises on the other income and loan loss provisions lines.


Stanbic has proposed an interim dividend of N0.90 per share which is below our N1.16 forecast and around -18% lower than the interim dividend paid in H1 2014. The dividend represents a yield of 3.64%.


When annualised, Stanbic’s PBT of N4.7bn tracks behind consensus full year PBT forecast of N39.3bn. Given the weak results and the lower dividend relative to 2014, we would expect the market’s reaction to be negative.


Our estimates are under review. We rate Stanbic Underperform.


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