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STANBIC IBTC HOLDINGS PLC 9M'20 Earnings - Non bank subsidiaries once again lift profit to new highs

Higher Non-interest Income, Opex growth remains tame

STANBIC released its unaudited 9M’20 financials yesterday, posting a 4% y/y increase in Gross Earnings to ₦183.3 billion (Vetiva estimate: ₦190.2 billion). The growth in earnings came despite a 10% y/y decline in Interest Income to ₦81.9 billion (Vetiva estimate: ₦83.3 billion). This was mainly due to a 19% y/y jump in Non-Interest Income to ₦101.3 billion, which was boosted by a 63% y/y jump in Fixed Income and Currency trading revenue to ₦44.4 billion. Meanwhile, Provisions grew from a net write-back of ₦90 million to a loss of ₦7.0 billion, while Opex grew by a tame 3% y/y to ₦73.7 billion (Vetiva Estimate: ₦74.6 billion). We note that STANBIC’s Opex growth has been very mild in 2020, which bodes well for the company’s improving profitability even as the banking arm continues to struggle. Ultimately, the firm reported an 11% y/y rise in PBT to ₦76.9 billion (Vetiva estimate: ₦79.7 billion) and a PAT figure of ₦66.1 billion, 19% higher y/y. This yields an EPS of ₦5.80 (9M’19: ₦5.30).

 

Q3 dip unlikely to affect FY’20 profit momentum

In Q3’20, STANBIC reported declines across several line items. Gross earnings were down 13% q/q to ₦56.7 billion as the result of a 20% q/q dip in Non-Interest Income to ₦29.9 billion. Furthermore, as expected, the drop in interest rates affected both interest income and expenses, although the rise in dividend and other income alone, more than made up for the 2% q/q decline in Net Interest Income to ₦18.7 billion. Also, the company appears to have shed a significant part of its balance sheet, with Cash and short term funds declining from a high of ₦1.1 trillion at H1’20 to ₦930 billion at 9M’20, while total assets fell from ₦3.0 trillion to ₦2.58 trillion as at 9M’20. We believe that the shedding of these assets along with some trading and derivative assets and some deposits is a strategic response to the current economic environment. However, we do not expect this to affect full year profitability, as the bank has already created a suitable buffer, with any further losses or impairments unlikely to significantly drag FY’20 profits.

 

TP revised to ₦42.43 (Previous: ₦42.20)

We have revised our Net Interest Income expectation to ₦76.4 billion (Previous: ₦75.9 billion) mainly due to our expectation of even lower Interest Expense in Q4. We also revised the loan loss expectation to ₦9.8 billion (Previous: ₦12.1 billion) due to the beat in Q3. Finally, we lowered our Opex forecast to ₦99.7 billion (previous: ₦101.8 billion). All in, we raised our PBT estimate to ₦102.9 billion (Previous: ₦102.7 billion) and our PAT forecast to ₦84.9 billion (Previous: ₦84.7 billion), yielding an EPS of ₦8.06 (Previous: ₦8.04) and an unchanged final dividend of ₦1.90. Consequently, we adjust our target price to ₦42.43 (Previous: ₦42.20). The bank is currently trading at a 4.1% premium to its target price and a P/Bv of 1.6x. The recent rally in the market has seen it and other banking names rise into overbought territory, therefore we recommend a SELL on the stock