EUR 25.67 For Business Accounts Only

Co-operative Bank of Kenya Ltd 3Q18 Earnings Update

Co-operative Bank of Kenya Ltd (NSE: COOP) released 3Q18 financial results reporting an 8.2% y/y increase in EPS to KES 1.76 from KES 1.63 in 3Q17, largely in line with our 6.5% y/y expectation to KES 1.73. The increase was buoyed by (i) Net Interest Income (NII) which grew 4.7% y/y to KES 21.7Bn compared to KES 20.8Bn in 3Q17, and (ii) Non-interest Revenue (NIR) which grew 4.3% y/y to KES 10.6Bn, attributed to a 9.9% rise in other fees, coupled with a 13.6% rise in trading income. Total operating expenses grew by a modest 3.1% y/y on account of a 12.3% y/y increase in staff costs to KES 8.1Bn, while loan loss provisions (LLP) declined by 50.3% y/y to KES 1.3Bn. The balance sheet grew 4.1% y/y driven primarily by investment in government securities that increased 20.5% y/y, despite the 2.0% y/y decline in the loan book. We recommend a BUY on Coop Bank at a target price of KES 17.05. This represents an upside potential of 21.4% from the current market price of KES 14.05.

Our View:  We highlight the bank’s focus on operational efficiency and re-organisation of its business model that we believe should see the bank continue to digitize operations in addition to efficiency driving down costs. This will lead to an improvement in CTI (in line with the 3-year average 48.4%) and consequently profitability. We believe the deterioration in asset quality remains a concern that will have to be monitored keenly moving forward as management had earlier indicated an improvement during the year was expected, an assertion that is yet to bear fruit. We recommend a BUY on Coop Bank at a target price of KES 17.05. This represents an upside potential of 21.4% from the current market price of KES 14.05.