Stanbic IBTC Q4 2019 Results Review: Sell-off Overdone Taking a Long Term View

Tuesday, March 10, 2020 / 08:58 AM / by FBNQuest Research / Header Image Credit: Stanbic IBTC

9% avg. increase to our 2020-21E EPS forecasts

Despite visible macroeconomic headwinds for 2020E largely due to external factors, Stanbic IBTC's (Stanbic) management has guided to a 2020E ROAE of 25-30%. Management sees strong AUM growth of 15-20% y/y, stable NIMs of between 4-5% relative to 2019 and strong loan growth of 15-20%. With an average oil price assumption of less than US$35/barrel for its oil & gas loan book and a largely hedged position, management is optimistic that the subdued pricing environment for crude oil will have very limited impact on asset quality for its oil & gas exposures which account for c.30% of its total loan book. In line with guidance, we have maintained our 2020E loan growth forecast at 15%.

Regardless, we expect funding income to decline by c5% y/y, because of a 70bp y/y reduction to our NIM forecast, which is at variance with management's stable NIM expectations. In contrast, we forecast non-interest income growth of 8% y/y in view of the strong AUM growth expectations. The revisions to our forecasts imply flattish PBT growth y/y (vs -8% y/y previously) and a ROAE of 23.2%, slightly below the lower-end of the 25% guidance.

On the back of these revisions, our 2020-21E EPS forecasts are c.9% higher on average. Our new price target of N51.2 is also c. 11% higher. At current levels, the shares are trading on a 2020E P/B multiple of 0.98x for 21.8% ROAE in 2021E or a significant premium of 102% to the 0.49x 2020E multiple for 16.8% ROAE that our universe of banks is trading on. Having shed -23.2% year-to-date (vs. -4.4% NSE ASI) Stanbic's shares imply a potential upside of 63% from current levels. As such, we upgrade our rating on the shares to Outperform from Neutral.

Solid earnings growth in Q4; PBT up 23% y/y

Stanbic's Q4 2019 pre-provision profits were up by 8% y/y, driven by a 19% y/y growth in non-interest income. In contrast, funding income declined by -3% y/y. Although loan loss impairments increased by 44% y/y, the positives from the pre-provision profits line, and to a lesser extent a -4% y/y decline in opex, resulted in a 23% y/y expansion in PBT. Further down the P&L, PAT growth accelerated by 30% y/y, thanks to a 670bp y/y reduction in the effective tax rate to 10.7%. Sequentially, PBT fell by 11% q/q, mainly on the back of a q/q spike (+269% q/q) in loan loss impairments.

However, thanks to the combination of a lower tax rate of 10.7% vs (21.1% Q3 2019) and a -96% reduction in the negative result in OCI to -N119m, PAT increased by 16% q/q. Compared with our forecasts, both PBT and PAT were in line.

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