Stanbic IBTC Holdings Q4 2016 Results Review- Upgrading from Underperform to Neutral Rating


Thursday, March 30, 2017 11.50 AM / FBNQuest Research

Earnings upgrade to meet management’s guidance
Stanbic IBTC’s Q4 2016 profit before provisions was 4% ahead of our estimate. We have increased our 2017-18E forecasts for this line by 4% on average as a result; we expect higher margins to compensate for slower non-interest income growth (due to base effects)

Additional slight positive surprises on the opex and provisions lines led to a marked positive surprise in Q4 PBT. Consequently, we have raised our 2017-18E PBT forecasts by 21% on average. These changes explain why we have increased our price target by 16.2% to N17.1, slightly below where the shares are trading currently, and our decision to upgrade our recommendation to Neutral

Our new forecasts imply a PBT growth of 20% in 2017E; though a deceleration compared with the 57% growth in 2016, they are still very healthy. The growth drivers include both revenue lines as well as a -150bp y/y reduction in our cost of risk assumption to 4.1% offsetting a 10% y/y rise in opex. Our 19.4% ROAE forecast for 2017E is in line with management’s guidance.

Better-than-expected Q4 2016 results
Stanbic’s Q4 2016 results showed strong y/y growth across the P&L. Q4 2016 PBT of N11.5bn grew 39% y/y while PAT grew much faster, by 159% y/y to N11.4bn, thanks to a significant other comprehensive income result of N4bn compared with a loss of –N87m a year prior.

Returning to the PBT, the growth was driven by a marked growth of 72% y/y in net interest income: interest income grew 31% y/y, thanks to improved yields, while interest expense fell -17% y/y as Stanbic retired expensive funds. This positive result more than compensated for a weak non-interest income outturn (-1% y/y), as well as y/y increases in provisions (+85% y/y) and opex (+15% y/y)

Sequentially, although the PBT grew only 4% q/q, PAT grew much faster, by 87% q/q because of the OCI gain. Relative to our forecasts, both PBT and PAT were ahead strongly, the latter on the back of the OCI result for which we forecast zero. The better-than-expected PBT result was driven by several factors, of which the most significant was the strong net interest income result.

This beat our forecast by 28%. Although non-interest income missed by 15%, the funding income result was strong enough to leave profit before provisions ahead by 4%. Positive surprises in loan loss provisions (19%) and opex (7%) combined to boost the surprise on the PBT line.

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