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Q3 2015 results review: All eyes still on capital raise

​All eyes still on capital raise

• Doubts on 2015E ROAE guidance on our part: Reconciling Skye Bank's 2015 ROAE guidance of 12.5% (unchanged) with a worse cost of risk guidance (4.0% vs 3.5% previously, despite management stating that Atlantic Energy and a telco exposure are no longer problematic) in particular is difficult. Even though we have increased our 2015-16E EPS forecasts by an average of 23.6% (on the back of increases to our non-interest income forecasts), we believe the bank's much-awaited N30bn capital raise will remain the single most important driver for the shares. The bank's capital adequacy ratio as of end-September was 17.3%. Management guides to the ratio falling to the minimum regulatory limit of 15% by end-2015, depending on some transactions (loans). Given that a private placement is just as realistic as a rights issue at this stage, the risk of dilution is high. We maintain our Underperform rating, despite the shares having lost -23% ytd (ASI: -16.1%). We have increased our price target by 48% to N1.9 due to our earnings upgrade and a 65% reduction in the goodwill balance (revaluation has led to other assets balance moving up).

• In-line Q3 PAT, thanks to OCI limiting y/y decline to 6.4%: Skye Bank's Q3 2015 PBT fell -16% y/y to N4.3bn. Although PAT also declined y/y, the magnitude was less than that on the PBT line, at -6% y/y, thanks to N372m in other comprehensive income. Both net interest income and non-interest income grew healthily, by 12% y/y and 136% y/y respectively. In addition, loan loss provisions fell -55% y/y to N1.1bn. However, these positives were more than offset by a significant rise in opex of 70% y/y to N27.2bn. Sequentially, Q3 PAT of N3.8bn grew 6% q/q; although PBT declined -4% q/q, this was less than what we saw for the y/y change. The strength in revenue was visible too, particularly non-interest revenue, which grew 95% q/q (funding income fell -2% q/q because interest income fell -12% q/q). Compared with our estimates, PBT was slightly behind, by 4.7%, but PAT was in line. Profit before provisions was actually much stronger than we expected. It beat our forecast by 21%, thanks to both funding income (9%) and non-interest income (51%) surprising positively. Provisions also surprised positively, coming in 64% below our forecast. These positives were offset by a significant negative surprise in opex. It came in 41% higher than we were expecting.