STANBIC IBTC HOLDING PLC Q1'17 - Earnings beat estimates, buoyed by strong top line growth

​Ahead of other industry players, STANBIC released its Q1’17 results posting impressive performances across key line items with Gross Earnings up 35% y/y to ₦47 billion – 15% ahead of our ₦41 billion estimate. The strong top line performance was spurred by striking y/y growth in both Interest and Non-Interest Income line – beating our expectations by 14% and 17% respectively. Whilst the q/q growth for Interest Income came in at a modest 2%, Non-Interest Income surged 31% q/q to ₦20 billion – supported by growth in trading revenue on the back of FX margins from forward transactions.  Despite a 12% y/y rise in Interest Expense (pressured by higher interest rate amidst a larger customer deposit), Net Interest Income remained strong (up 79% y/y) as attractive yield environment continues to support top line. Furthermore, amidst a combined loan loss recovery and credit impairment reversal of ₦2.5 billion, STANBIC recorded a loan loss provision of ₦3.3 billion – better than our ₦3.9 billion estimate. With Operating Expense also coming in better than expected and amidst a moderated effective tax rate of 14% (Vetiva estimate: 18% and Prior year’s 24%), PAT doubled to ₦16.1 billion – dwarfing our ₦8.9 billion forecast.

We have revised our estimate to reflect the better than expected performance across key line items. Whilst we raise our Deposit and Total Assets growth forecast to 11.3% (Previous: 7.5%) and 14% (Previous: 8.0%) respectively, we cut our loan growth forecast to 5% (Previous: 8.0%). Despite our more conservative credit growth forecast, we revise our top line estimate upward to reflect the stronger yield environment. We note the moderation in CoF observed since 2016 and expect this to drive earnings going forward. Although we remain cautious of the risk environment, we revise our loan loss provision estimate to ₦15.7 billion (Previous: ₦19.6 billion) – translating to a Cost of Risk of 4.3% (FY’16: 5.6%). We are optimistic about STANBIC’s performance in FY’17 and expect earnings from the Corporate and Investment Banking business to continue to support bottom line. Consequently, we forecast an EPS of ₦4.49 for FY’17 (Previous: ₦3.55). Overall, we raise our Target Price (TP) to ₦25.74 (Previous: ₦18.93). STANBIC trades at FY’17 P/B: 1.3x and P/E: 4.8x.