September 07, 2020 / 09:30 AM / by FBNQuest Research / Header
Image Credit: Stanbic IBTC
Rolling over to 2021E; price target up 16%
We keep our Outperform rating on Stanbic IBTC (Stanbic) with a 12M target price of N53.7 (up +16%), implying a potential upside of c.41% from current levels. The bank's results came in ahead of our forecasts on almost all key headline items. As such, the upward revision to our price target is underpinned by average increases of c.19% and 5% to our 2020E and 2021E EPS forecasts respectively - the strong growth for the former reflecting a gain of +N12.9bn in other comprehensive income (OCI) in Q2.
The key drivers behind the upward revisions to our earnings estimates are average increases of c.7% to our 2020-21E funding income and non-interest income forecasts. We have not carried forward the full strength of the better-than-expected non-interest income result due to expectations of a more subdued growth outlook on this line. Management noted that the solid non-interest income growth in H1 was largely driven by a decline in asset yields.
Going forward, it does not expect a repeat of that scenario given the prevailing level of yields on fixed-income securities. Due to ongoing risks to asset quality arising from the COVID-19 pandemic which led to the restructuring of c.7% of the loan book, management revised up its cost of risk guidance by +100bp to <=3%. Our cost of risk assumption of 2.4%, up c.140bps, is within the revised guidance.
Despite the modest increase to our earnings forecasts, the additional uplift to our price target is because we have rolled over our valuation to 2021E. Our new forecasts imply 2020E PBT growth of 5% y/y and (2020E) ROAE 26.8%. Although its 2020E P/B multiple of 1.1x is at a premium to the 0.5x average multiple for the sector, our forecast 2021E ROAE of 21.8% is also much higher than the sector average ROAE of 15.7%.
PBT up 32% y/y, driven by solid growth in non-interest income
Stanbic Q2 earnings were stellar. PBT grew strongly by 32% y/y, underpinned by a 20% y/y expansion in pre-provision profit and a -5% y/y reduction in opex. Although loan loss provisions spiked by triple-digits (+432%) y/y as a result of a deterioration in asset quality due to macroeconomic headwinds induced by the pandemic, the positives from the revenue and opex lines were more significant.
Further up the P&L, the y/y growth in pre-provision profit growth was driven by a 33% y/y increase in non-interest income on the back of solid trading (fixed income and fx) gains during the quarter. Below the tax line, PAT growth accelerated by 117%, thanks to a positive result of N12.9bn in OCI.
Sequentially, the growth trends almost mirrored those on a y/y basis with PBT and PAT expanding by 15% q/q and 103% q/q respectively, thanks to the solid growth in non-interest income and OCI.