STANBIC IBTC HOLDINGS PLC FY'17 - Strong balance sheet growth to support future earnings

Strong balance sheet growth to support future earnings                                                

STANBIC released its FY’17 results earlier with most line items coming in largely in line with our estimates. Maintaining earlier quarters’ run rate, Gross Earnings rose 2% q/q, leading to a 36% y/y growth for the FY’17 period - 3% ahead of our estimate. The impressive top line performance was supported by robust growth in both Interest and Non-Interest Income – up 41% and 31% y/y respectively. Deviating from the trend observed across most of the banks’ that have released FY’17 results so far, loan loss provision moderated 18% q/q in Q4’17 to bring FY’17 provision to ₦25.6 billion – 11% better than we had expected. Consequently, Operating Income was up 39% y/y to ₦147 billion, beating our ₦139 billion estimate. However, with Operating Expense up 25% y/y to ₦86 billion – following an 8% q/q rise in Q4’17, PAT came in marginally ahead of our estimate at ₦48.4 billion – up 70% y/y.                                               

We have updated our model and revised our forecasts to reflect the positive result and mild deviation around a few line items. We believe the impressive balance sheet growth in FY’17 presents a strong platform for growth in 2018. Consequently, we forecast loan growth of 10% for FY’18 amidst improving risk environment. Also, we expect earnings from the market leading subsidiaries to continue to support top line with Non-Interest Income contributing 42% to Gross Earnings. Overall, we forecast a strong 24% y/y growth in PAT to ₦59.8 billion, translating to an EPS of ₦5.95. With this, our earnings forecast translates to average ROE and ROA of 27.8% and 4.1% respectively.