November 09, 2017 / 11:30 AM / Vetiva Research
· Top and bottom line beat estimates, PAT up 87% y/y
· Strong balance sheet growth defies industry trend
· Asset quality pressure persists – CoR revised to 7.8% for FY’17
· TP revised upward to ₦29.91 (Previous: N28.39)
Top and bottom line beat estimates, higher significantly y/y
STANBIC released its 9M’17 results earlier, posting strong top and bottom line performances - up 35% y/y and 87% y/y respectively, coming in ahead of our estimates. The better than expected top line performance was largely buoyed by strong growth in Interest and Non-Interest Income, up 47% y/y and 22% y/y to ₦89.7 billion and ₦64.3 billion – ahead of our respective estimates of ₦80.6 billion and ₦60.5 billion.
Whilst the high interest rate environment and the stronger than expected 7% loan growth (a trend that deviates from the flat loan growth observed across other banks) must have supported top line, we highlight the notable rise in Interest on Investment (9M’17: ₦43.5 billion; 9M’16: ₦19.4 billion) – spurred by income from treasury bills investment. Similarly, in line with industry trend, Interest Expense rose 22% y/y to ₦26.7 billion – ahead of our ₦24.2 billion estimate – having been pressured by a significant 43% q/q rise in Q3’17 - a trend management attributed to increase in deposit growth (up 24% ytd) as well as higher interest rate.
Consequently, Net Interest Income rose 61% y/y to ₦62.9 billion, ahead of our ₦56.5 billion estimate. However, with loan loss (₦20.3 billion) and Operating Expenses (₦61.2 billion) both coming in ahead of our respective estimates of ₦16.6 billion and ₦55.0 billion, PAT came in marginally ahead of our estimate (2% deviation) at ₦37.7 billion – albeit up 87% y/y.
TP revised to N29.91 (Previous: N28.39)
We highlight the strong balance sheet growth recorded ytd (loan growth: 7%; deposit growth: 24%; total assets: 35%) and expect this to support earnings going forward. Consequently, we revise our estimates to reflect the deviation across a few line items. Particularly, we raise our Interest and Non-Interest Income to ₦121 billion and ₦86 billion respectively to reflect the elevated interest rate environment and the impressive income from fixed income securities.
Similarly, we raise our Interest and Operating Expense estimates in line with 9M’17 run rate. Also, we revise our loan loss estimate to ₦28.8 (Previous: ₦21.9 billion) – translating to a 7.8% cost of risk. Overall, our PAT estimate is little changed at ₦49 billion – a 71% y/y growth from prior year. STANBIC trades at FY’17 P/B: 2.4x and P/E: 8.7x vs. our coverage banks’ average P/B: 0.8x and P/E: 4.5x.