Higher Non-interest Income, Opex growth remains tame
STANBIC IBTC released its unaudited 9M’20 financials yesterday, posting a 4% y/y increase in Gross Earnings to N183.3 billion (Vetiva estimate: N190.2 billion). The growth in earnings came despite a 10% y/y decline in Interest Income to N81.9 billion (Vetiva estimate: N83.3 billion).
This was mainly due to a 19% y/y jump in Non-Interest Income to N101.3 billion, which was boosted by a 63% y/y jump in Fixed Income and Currency trading revenue to N44.4 billion. Meanwhile, Provisions grew from a net write-back of N90 million to a loss of N7.0 billion, while Opex grew by a tame 3% y/y to N73.7 billion (Vetiva Estimate: N74.6 billion).
We note that STANBIC’s Opex growth has been very mild in 2020, which bodes well for the company’s improving profitability even as the banking arm continues to struggle. Ultimately, the firm reported an 11% y/y rise in PBT to N76.9 billion (Vetiva estimate: N79.7 billion) and a PAT figure of N66.1 billion, 19% higher y/y. This yields an EPS of N5.80 (9M’19: N5.30).
Q3 dip unlikely to affect FY’20 profit momentum
In Q3’20, Stanbic IBTC reported declines across several line items. Gross earnings were down 13% q/q to N56.7 billion as the result of a 20% q/q dip in Non-Interest Income to N29.9 billion. Furthermore, as expected, the drop in interest rates affected both interest income and expenses, although the rise in dividend and other income alone, more than made up for the 2% q/q decline in Net Interest Income to N18.7 billion.
Also, Stanbic IBTC appears to have shed a significant part of its balance sheet, with Cash and short term funds declining from a high of N1.1 trillion at H1’20 to N930 billion at 9M’20, while total assets fell from N3.0 trillion to N2.58 trillion as at 9M’20. We believe that the shedding of these assets along with some trading and derivative assets and some deposits is a strategic response to the current economic environment.
However, we do not expect this to affect full-year profitability, as Stanbic IBTC has already created a suitable buffer, with any further losses or impairments unlikely to significantly drag FY’20 profits.
TP revised to N42.43 (Previous: N42.20)
We have revised our Net Interest Income expectation to N76.4 billion (Previous: N75.9 billion) mainly due to our expectation of even lower Interest Expense in Q4. We also revised the loan loss expectation to N9.8 billion (Previous: N12.1 billion) due to the beat in Q3. Finally, we lowered our Opex forecast to N99.7 billion (previous: N101.8 billion).
All in, we raised our PBT estimate to N102.9 billion (Previous: N102.7 billion) and our PAT forecast to N84.9 billion (Previous: N84.7 billion), yielding an EPS of N8.06 (Previous: N8.04) and an unchanged final dividend of N1.90. Consequently, we adjust our target price to N42.43 (Previous: N42.20).
The bank is currently trading at a 4.1% premium to its target price and a P/Bv of 1.6x. The recent rally in the market has seen it and other banking names rise into overbought territory, therefore we recommend a SELL on the stock.