- PAT misses estimate after a decline in net recoveries
- Loan portfolio up 6% YTD in Q2’19, deposits 15% down
- Opex increased by 6.2% y/y to ₦52 billion (Estimate: ₦49.6 billion)
- TP revised to ₦48.36 (Previous: ₦49.00)
Higher costs outweigh marginal earnings improvement
Stanbic IBTC released its H1’19 earnings, posting a 15.9% y/y decline in PAT to ₦35.0 billion despite stronger Gross Earnings for the period. Q2’19 performance lagged the previous quarter across most metrics, with Interest Income declining 4.8% q/q due to the lower yield environment in Q2.
Although Interest Expense also moderated 4.0% q/q, Net Interest Income (NII) was down 5.3% q/q; this meant that H1’19 Net interest income came in at ₦39.3 billion, 4.4% below our estimate. The bank, however, recorded a 9.6% q/q improvement in Non-Interest Income, with the ₦29.6 billion figure coming in 2.0% above our estimate; this was mostly driven by the improved business environment compared to the first quarter. Supported
by this, Gross Earnings printed 3.2% higher y/y at ₦117.4 billion, 1.7% below our estimate.
Nonetheless, PBT suffered as a result of higher Opex, which increased by 6.6% q/q to ₦26.7 billion, driven by a 16.8% q/q rise in personnel cost; this meant a 6.2% y/y increase in Opex to ₦51.8 billion, 4.4% above our estimate. The bank also saw a decline in loan loss writebacks in Q2, recording total impairments of ₦834 billion for the period, which brought net write-backs for H1’19 down to ₦557 million, 89.9% lower y/y.
Ultimately, due to the decline in write-backs and higher operating costs, PBT declined 10.1% q/q to ₦21.1 billion, translating to a total of ₦44.7 billion for H1’19, 12.0% lower y/y and 2% below our estimate.
Stronger loan book and lower deposits boost LDR
The bank was successful in growing its loan book in Q2, with a 12.7% q/q improvement to ₦495.5 billion taking total loans up by 6.0% YTD. This, coupled with a steep 15.0% YTD decline in total deposits, has given the bank a Loan to Deposit Ratio (LDR) of 60.2%, just within the CBN guideline (60.0%). Overall, the bank is in line to meet our FY’19 loan book growth expectation (10.0%), however, the decline in total deposits is a concern for the bank’s cost of funds. We highlight the bank’s stable NPLs, which have remained at 3.9% despite the growth in total loans. This bodes well for the bank’s emphasis on asset quality.
TP revised to ₦48.36 (Previous: ₦49.00)
We marginally revised some of our estimates to reflect the miss across key line items. Particularly, we note that quarterly earnings run rate moderated marginally following higher impairment charges within the period.
Furthermore, our Interest Income estimate is reduced to ₦123.1 billion (Previous: ₦128.8 billion) due to the H1’19 miss. Conversely, our NonInterest Income is maintained at ₦115.9 billion, with the bank slightly outperforming our expectations for fees and commission and income from investments. Moreover, we cut our loan loss provision to ₦8.2 billion – a relatively cautious stance given the ₦557 billion write-back so far in H1’19.
We also raise our Operating Expense projection to ₦99.6 billion (Previous: ₦97.9 billion). Overall, we lower our PAT estimate to ₦70.6 billion (Previous: ₦74.1 billion), translating to a decline of 5.1% EPS to ₦6.90. With RoE and RoA of 28.4% and 4.1% respectively, STANBIC currently trades at FY’19 P/B: 1.5x and P/E: 5.1x vs. our coverage banks’ average
P/B: 0.7x and P/E: 2.9x. Thus, we lower our Target Price to ₦48.36 (Previous: ₦49.00).
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