- PAT beats estimate on lower Interest Expense
- Loan portfolio up 21% y/y, Deposits down 34%
- Opex declined 1% y/y to ₦71.6 billion (Estimate: ₦75.9 billion)
- TP revised to ₦49.09 (Previous: ₦48.58)
Net Interest Income remains flat y/y
STANBIC released its unaudited FY’19 earnings, posting a 6% y/y increase in Gross Earnings to ₦233.8 billion. Interest Income improved 2% y/y to ₦120.4 billion, mainly on the back of growth in the average volume of loans and a favourable interest rate environment. However, Interest Expense increased 6% y/y to ₦42.6 billion, leading to Net Interest Income of ₦77.8 billion, flat y/y. Meanwhile, Non-Interest Income grew 11% y/y to ₦113.4 billion (Vetiva estimate: ₦108.2 billion), thanks to a 16% y/y growth in trading income. Conversely, the bank recorded a ₦1.6 billion loan-loss provision, a reversal from the from ₦2.9 billion in write-backs from FY’18. On a more positive note, the bank posted a 2% y/y decline in OPEX to ₦94.0 billion, in line with our estimate, thanks to a 6% decline in personnel expenses to ₦40.6 billion. Looking forward, we expect the bank to maintain its modest OPEX growth, with the largest effect likely to come as a result of inflation and regulatory charges. Overall, the bank’s PBT improved 3% y/y to ₦90.9 billion (Vetiva Estimate: ₦86.2 billion), while PAT was only 1% higher y/y at ₦75.0 billion (Vetiva Estimate: ₦72.7 billion).
Earnings remain flat q/q, Loan-book shrinks marginally
In the fourth quarter alone, the bank recorded a 2% q/q decline in Gross Earnings to ₦57.7 billion (Vetiva estimate: ₦57.1 billion). This was a result of the 3% decline in Interest Income to ₦29.4 billion (Vetiva Estimate: ₦29.9 billion), while Non-Interest Income remained flat q/q at ₦28.3 billion. As expected, OPEX came in higher q/q at ₦22.4 billion (albeit lower than Q1 and Q2 figures). This was as a result of a ₦1.9 billion increase
in IT expenses during the period. Meanwhile, the bank’s loan-book shrank 1% q/q to ₦535.2 billion, but the bank still recorded a 21.3% y/y growth in total loans, a result of the CBN’s minimum LDR requirement. Overall, total deposits declined 12% q/q to ₦886.7 billion, giving the bank an estimated LDR of 62.7% as of FY’19, slightly lower than the 9M’19 figure (62.9%), but higher than the industry average of 58.6% as at FY’19.
FY’20 profit expectation a mild improvement
In 2020, we expect the bank’s Interest Income to grow modestly (3% y/y) due to the lower yield environment expected in FY’20, while we also project a mild 4% y/y increase in Interest Expense, giving a 2% y/y growth in Net Interest Income (FY’19:-0.5% y/y). On a more positive note, we foresee further improvements in Non-Interest Income, projecting a 5% y/y growth, mainly driven by higher fees and commissions, albeit tempered by the new CBN guidelines on bank transaction and ATM charges. Due to the likely increase in loan-book, which we project at 9% y/y, in order to comply with LDR, we expect further increments in provisions in 2020. Thus, we expect the bank to spend ₦3.0 billion on provisions for FY’20. As such, we foresee an FY’20 PBT figure of ₦98.6 billion (+8.5% y/y) and PAT of ₦81.4 billion, giving an EPS of ₦7.75 and a final dividend of ₦2.67. Consequently, we raise our target price for STANBIC to ₦49.09 (Previous: ₦48.58), an 18.3% premium from current market price (₦41.50) and place a BUY rating on the stock. However, we note that this rating is subject to change upon release of the bank’s audited financial.