ADIB EY | A strong valuation call; Resume at OW
Trading at a deep discount. We resume coverage on ADIB-E with an OW recommendation and a TP of EGP22.0/share. ADIB-E trades on a 2022e P/BV of 0.5x (P/E of 2.8x), a 61% discount to its five-year average and 55.5% to the average valuation of tier-1 peers. Trading at a discount to CIB – the sector’s proxy – could be attributed to size and capitalisation, but the magnitude is not justified, given ADIB-E’s 2022e RoE of 22.7% and 2022-24e EPS CAGR of 18.7%, broadly in line with peers.
Phase 1 of capital hike behind us, resolving the historical overhang. ADIB-E recently completed the EGP2bn capital increase, with a high coverage from the first round – a sign of a strong appetite. The bank plans to call for another rights issue of EGP1bn in 4Q22/1Q23 to comply with the minimum capital requirement of EGP5bn. Throughout this process, ADIB-UAE’s share is funded from previous financing injections – booked under additional paid-in capital – while minorities are injecting EGP1.5bn in fresh funds to shore up capitalisation (2.3% of RWAs).
Steady growth ahead,… We expect ADIB-E’s loan portfolio to grow at a 2022-24e CAGR of 16.8%. The credit growth should be driven by a pick-up in corporate lending during 2H22-2023e and a shift more toward retail lending in later years – primarily a function of a recovery in auto loans. This should reflect on the bank’s better utilisation, with LTD rising to 75% by 2024e from 62.2% 2021, potentially filtering through to margins. We look for NIMs to expand by 41bps over 2022-24e, in line with its favourable deposit mix and more active utilisation level.
…but capitalisation remains a watch factor. ADIB-E’s capital adequacy level remains below its tier-1 peers and some of the smaller banks. The bank’s CAR stands at 13.8% vs. an average of 24.4% for banks under coverage. We do not incorporate any dividends over the forecast horizon. Better-than-expected growth/profitability could support distributions over the medium-term, posing upside.
Abu Dhabi Islamic Bank Egypt SAE, formerly National Bank for Development (NBD), is an Egypt-based public shareholding company engaged in the provision of retail, corporate and investment banking services through a network of 69 branches located across Egypt. The Bank's products and services are structured into four segments: the Personal banking segment includes current and saving account, investment account, club finance, charitable accounts and sukuk, among others; the Microfinance segment includes microfinance program; the Wholesale banking segment includes corporate banking, financial institutions and trade, cash management and corporate finance, and the Treasury segment includes foreign exchange, sharia-compliant products and market analysis/updates. In January 2014, the Company sold 11,619,575 shares representing 77.46% stake in National Company for Glass and Crystal's share capital to Abu Dhabi Islamic Financial Investments Holding.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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