Wednesday, December 08
2021 / 10:20 AM / by FBNQuest Research / Header Image Credit: Stanbic IBTC Bank
11% cut to our price target
We keep our Underperform rating on Stanbic, while lowering our price target by -11% to NGN32.0. Although the bank's Q3 EPS beat our forecast by c.62%, the outperformance was mostly due to a positive result of NGN9.9bn in other comprehensive income (OCI) vs. our zero forecast for the line. Stanbic's funding income improved y/y and q/q due to robust loan volume growth of 8% q/q, which offset the pressure on NIMs.
The q/q loan book expansion implies a ytd loan growth of c.32%, already ahead of the 25% upper-end of management,s FY '21 guidance. In contrast, non-interest income, which normally accounts for the majority (>50%) of the bank's revenue, has remained sluggish this year, falling by almost -19% y/y in Q3, largely because of low market yields. Following the strong loan growth, we have increased our FY '21 loan growth forecast to c.35% from 25% previously.
Although we have cut our FY '21-22f non-interest income forecasts by c.7% on average, our FY '21f EPS forecast is up by almost 13% because of the positive result in OCI. However, we have cut our FY '22f EPS forecast by c.-10%, largely reflecting a 17% increase in the share count from bonus distributions for FY '20 results. On the back of these revisions, we forecast a -34% y/y decline in FY '21 PBT to c.NGN63bn. Thereafter, we see PBT growth of 28% y/y to c.NGN80bn.
The bank's current valuation multiple of 1.2x FY '21f P/B multiple for 18% ROAE (post-OCI) represents a premium of 114% over the 0.5x FY '21f P/B multiple for 14.5% ROAE that our universe of banks is trading on. Stanbic shares have shed -16.0% this year, compared with a +4.3% return on the NGX ASI. Our new price target implies a potential downside of -14% from current levels. As such, we reiterate our Underperform rating on the shares.
Mixed Q3 '21 results thanks to a positive result of NGN9.9bn in OCI
Stanbic's Q3 PBT and PAT fell -16% y/y and -17% y/y to NGN21bn and NGN17bn respectively. The marked decline in earnings was primarily driven by a -19% y/y decrease in non-interest income. An 8% y/y rise in opex also contributed. The y/y reduction in non-interest income was driven by a -65% y/y decline in fixed income and fx trading income to NGN3.5bn. In contrast to the y/y decline in PAT, total comprehensive income expanded by 46% y/y to NGN27bn, because of the positive result of NGN9.9bn in OCI vs. -NGN2bn in Q3 '20.
Sequentially, PBT and PAT were up by between 54% and 64% q/q on the back of an -88% q/q decline in loan loss provisions. Total comprehensive income expanded by c.820% q/q due to the positive result in OCI vs. -NGN7.8bn in Q2 '21.