BAFL: Gearing for growth!, (AKD Daily, Dec 26, 2019)
- Bank Alfalah Limited (BAFL) has underperformed the broader banking index by 10.3ppts CY19TD over concerns allied to the bank being most exposed to the SME sector that carries highest systematic risks and market factors (foreign interest, cheap valuations, recovery story etc.) putting top tier banking stocks into limelight.
- The stock is currently trading at a CY20F P/B of 0.85x, offering a CY20-22F avg. ROE of 15.0% - driven by earnings 3y CAGR of 8.2%. The earnings accretion is forecast at the back of, i) Net Interest Income (NII) likely growing at a CAGR of 9.6%, ii) NFI expected to record a CAGR of 10.3% where realization of gains and digitization fees and commission could surprise on the upside, and iii) contained credit costs.
- Changing gear from consolidation to growth with significant improvement in ROE (CY19F ROE: 16.0% vs. 14.6% on avg. in the past 5y) strengthening regulatory buffers (Sep’19 CET-1 Capital: 12.1% vs. 10.9% in CY18), BAFL has added 24 branches till Sep’19 (4% of the branch network) with plans to operationalize another 50 branches by CY19-end.
- Dec’20TP for BAFL stands at PkR57.0/sh where reduced systematic risk pressures with improvement in macro fundamentals along with healthy dividend payouts (~54% avg. assumed over our investment horizon) should translate into stronger stock performance.
AKD Research
Bank Alfalah Limited is a holding company. The Company's segments include Retail banking, including loans, deposits, trading activity, wealth management and other banking transactions with its retail and middle market customers; Corporate banking, which includes loans, deposits, project financing, trade financing, investment banking and other banking activities with its corporate and public sector customers; Treasury, including liquidity management activities carried out through borrowing, lending and money market operations; Consumer banking, including constitutes consumer financing activities with individual customers; Islamic banking, pertaining to its full scale Islamic Banking operations; International operations, which includes amounts related to its overseas operations, namely, commercial banking activities in Bangladesh and Afghanistan, and wholesale banking activities in the Kingdom of Bahrain, and Others, including merchant banking related activities.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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