EUR 55.40 For Business Accounts Only

Earnings dwarf estimates, buoyed by strong Q3

• ​ STANBIC’s 9M’16 results beat our estimates across major line items – particularly around the bottom line. Although Gross Earnings came in 5% behind our estimate, pressured by weaker than expected Interest and Non-Interest Income, Net Interest Income came in strong as Interest Expense moderated 26% y/y to ₦22.1 billion – contrary to industry trend and significantly better than our ₦32.6 billion estimate. Whilst loan loss expense rose as expected (up 22% y/y to ₦15.3 billion), the magnitude came in much more modest than the industry trend suggests and better than our ₦18.1 billion estimate. With Operating Expense also coming in 5% better than our estimate (albeit, 10% higher y/y), bottom line was significantly ahead of our estimate, up 49% y/y to ₦20.2 billion vs. our ₦13.2 billion estimate. 

• STANBIC recorded a stellar performance in Q3 with the quarter accounting for 40% and 42% of 9M’16 top and bottom line respectively. Although loan loss provision (₦8.2 billion vs. Q2’16: ₦6.2 billion) and other cost lines came in slightly higher, the significantly improved top line overshadowed the impact of rising cost to ensure an impressive Q3’16 PAT of ₦8.5 billion vs. Q2’16: ₦2.5 billion. Whilst we revise our FY’16 Interest Expense downwards significantly to ₦31.7 billion (Previous: ₦43.5 billion), our revision to loan loss expense is marginal at ₦22.2 billion (Previous: ₦24.2 billion). We are impressed by the accretion of customer deposit within the period without a noticeable uptick in funding cost despite the high interest rate environment. Hence we revise our deposit growth forecast to 21% (Previous: 14%). Also, we note the relatively flat loan book portfolio (as against the average 25% growth recorded by our coverage banks) despite impact of currency devaluation.Consequently, we cut our loan growth for FY’16 to a mild 3% (Previous: 25%). Overall, we raise our Target Price (TP) to ₦17.26 (Previous: ₦15.09).