Bank Alfalah Limited: Down to Neutral on price performance; estimates tweaked
- While we are cognizant of key positives in Bank Alfalah Ltd’s (BAFL) strategy (low duration of investment book and potential deeper cost cutting), we believe a strong price performance (see side bar) has left little upside.
- We accordingly downgrade the stock to Neutral from Buy with a revised TP of PKR55.7. The stock trades at P/BV of 1.1x and with ROE of 14.2% (in CY18E).
- Capital adequacy concerns for BAFL are largely addressed with CAR (Tier-I) rising to 11.21% in CY17 from 9.85% in CY16. Capital consolidation and issuance of additional Tier-I capital have allowed BAFL to resume cash payout in CY17, ahead of our expectation of 2H18. We see limited room for ramp up in payout in CY18.
- A key upside risk is steeper than expected hike in interest rate (we see 75bps jump over CY18). Additional 50bps hike may lead to 3-4% upside in EPS estimates of CY18/CY19E.
- A key downside risk is increase in infection ratio given BAFL’s relatively high ADR and one of the lowest infection ratio (currently at 4.2%) in the industry. Every 0.5% increase in NPL (with 80% provisioning) leads to 10-11% downside in our earnings estimates for CY18/19E.
United Bank is engaged in commercial banking and related services. Co. operates five business segments: Corporate Finance, Trading and Sales, Retail Banking, Commercial Banking and Asset Management. As of Dec 31 2016, Co. operates 1,341 branches inside Pakistan including 47 Islamic Banking branches and 2 branches in Export Processing Zones, and 18 branches outside Pakistan.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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