June 06, 2018 12:53 PM / FBNQuest Research
7% avg. increase to our 2019-20E EPS forecasts
Stanbic’s IBTC’s (Stanbic) Q1 2019 PAT came in ahead of our forecast due to positive surprises in loan loss provisions and other comprehensive income. Consequently, we have increased our 2019-20E EPS forecasts by 7% on average and our price target by 9% to N49.9. The upgrade to our earnings forecasts is largely driven by the strong result in OCI and to a lesser extent a 100bp reduction in our cost-of-risk assumption to 1.0%. In terms of asset quality, Stanbic’s NPL ratio remained stable at around 4% (vs. 3.9% in Q4 2019). On an annualised basis, its Q1 2019 PAT implies an ROAE of 36.8%, higher than management’s 30-35% guidance. However, our new forecasts translate to a 2019E PBT of N94.3bn or a post-tax implied ROAE of 30.8%.
At current levels, Stanbic shares are trading on 2019E P/B multiple of 1.5x. Although this multiple appears rich when compared with the 0.7x average that our universe of banks is trading on, its 2020E ROAE of 26.8% is more compelling than the 19.0% average that we forecast for the group. Having shed -12.4% ytd vs. -1.6% NSE ASI, the shares now imply a potential upside of 18.9% to our price target. We view the pull-back in the shares as a potential buying opportunity. Consequently, we upgrade our recommendation to Outperform from Neutral.
Q1 2019 PAT up 12% y/y, driven by OCI gains
Stanbic’s Q1 PAT grew by 12% y/y, thanks to a positive result of N4.2bn in other comprehensive income (OCI). Further up the P&L, PBT declined by a similar margin because of negative base effects in loan loss provisions (net recoveries declined by -73% y/y to N1.4bn). In terms of underlying earnings, pre-provision profits were flat y/y, as a 7% y/y expansion in funding income was completely offset by a 3% y/y reduction in non-interest income.
Sequentially, PBT and PAT grew by 32% q/q and 57% q/q respectively, thanks to a 19% q/q increase in non-interest income and net recoveries of N1.4bn compared with an impairment charge of –N1.2bn in Q4 2018. A 15.7x q/q increase in other comprehensive income contributed to the faster PAT growth relative to PBT. Compared with our forecasts, PBT and PAT beat by 12% and 29% respectively.