Thursday, April 27, 2017/ 2:18 PM / FBNQuest Research
Marked increases to earnings estimates and price target
Such is the strength of Stanbic IBTC Holdings (Stanbic) results that we have increased our earnings estimates over the 2017-18E period by an average of 71% and our price target by 47% to N25.1. Q1 2017 PBT grew 82% y/y, beat our forecast by 67% and equates to 50% of the FY2016 PBT result. The PAT equates to 67% of the FY 2016 result.
Although both revenue lines contributed to the strong results, funding income was the more prominent of the two, thanks to c.20%+ yield on tbills. Despite the Q1 results, the bank is keeping its guidance for the full year (ROAE of 18-20%) unchanged. We assume the bank is being deliberately conservative.
The one caveat, however, is the risk that asset quality deterioration poses. The bank’s NPL ratio doubled to 10.5% q/q. Management would have been aware of this development when it guided to an end-year target of c5% for 2017 a few weeks ago.
Despite increasing our 2017 E loan loss provisions forecast by 12% to cater for an end-2017E NPL ratio forecast of 8%, the upgrade to our earnings forecasts is still significant. We have stopped short of upgrading our recommendation to Outperform due to the limited response from management regarding the outlook for the rest of the year.
Better-than-expected Q1 2017 results
Stanbic’s Q1 2017 PBT of N18.6bn grew 82% y/y while PAT of N16.4bn was up by 196% y/y. Both income lines drove the strong results. While net interest income increased by 79% y/y on the back of high yields on the bank’s fixed income portfolio, non-interest income grew by 19% y/y to leave profit before provisions up 42% y/y at N39bn.
Trading income was the main driver behind the robust non-interest income performance, up from N2.6bn to N6.7bn; net fees and commission revenue was down slightly y/y. The profit before provisions result was strong enough to offset marked y/y increases of 47% and 14% in both loan loss provisions and opex respectively, hence the 82% y/y growth in PBT.
Sequentially, non-interest income stood out: a growth of 31% q/q (funding income was flat). The results were better than we had expected. PBT beat by 67% while PAT was more than double our forecast, thanks to a combination of positive surprises on taxes, other comprehensive income and minorities.
From a revenue perspective, both surprised positively – net interest income by 26%, non-interest income by 13%. Although loan loss provisions negatively surprised by 11%, it was overshadowed by a positive surprise in opex.