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DIAMOND BANK PLC FY'16 - Weak y/y performance beat estimates

​Weak y/y performance beat estimates
DIAMONDBNK released its long awaited FY’16 results showing weaker y/y performances across most income lines albeit ahead of our estimates. Despite a 7% y/y rise in Non-Interest Income, Gross Earnings moderated marginally to ₦212 billion (Vetiva estimate: ₦197 billion), pressured by a 5% y/y decline in Interest Income (₦150 billion vs. Vetiva estimate: ₦147 billion). We highlight that the moderation in top line reported by DIAMONDBNK deviates from the trend observed across our other coverage names where Gross Earnings grew by an average 15% following the sizeable FX revaluation gains recorded post H1’16. Whilst Interest and Operating Expense both came in contained y/y at ₦42.3 billion and ₦97.1 billion respectively, loan loss provision remained the major pressure point for earnings, up 7% y/y to ₦59.0 billion (despite the already high base of FY’15) and ahead of our ₦58.1 billion forecast. Consequently, PBT moderated 29% y/y to ₦5.0 billion.

Whilst we note that DIAMONDBNK’s earnings came in ahead of our estimate, we highlight that the bank’s performance was weaker y/y despite an already low base of FY’15 – touching a 5-year low. Although we are impressed by the cost containment strategy of the bank, we expect top line growth to remain sticky and forecast a mild 2% growth in Gross Earnings to ₦217 billion. However, having made huge provisions in the last two years and amidst improving macroeconomic outlook, we expect the asset quality pressure to ease mildly in 2017 and forecast a loan loss provision of ₦44.1 billion. Overall, we forecast a ₦14.9 billion PAT for FY’17 – translating to an EPS of ₦0.64. DIAMONDBNK trades at FY’17 P/B and P/E of 0.1x and 1.4x vs. our coverage bank’s averages of 0.4x and 2.8x respectively.