Earnings Report /

Al Baraka Bank Egypt: 1Q20 – Robust margins drive earnings growth; healthy balance sheet growth

  • Strong sequential results came on the back of stronger margins caused by higher treasury exposure

  • Absence of over provisioning supported earnings, while weak non-interest income and higher OPEX were notable

  • Balance sheet showed healthy growth

Bottom line surges on solid NIM coupled with the absence of high provisioning; Healthy balance sheet growth

SAUD’s standalone bottom line in 1Q20 recorded EGP260 mn (+37% q/q, and -2% y/y). Strong sequential results came on the back of stronger margins caused by higher treasury exposure, along with the absence of over-provisioning witnessed by most of the banks. Weak non-interest income and higher OPEX were notable. 

1Q20 results takeaways are:

  • NIM was the main driver for earning growth as it expanded by 90bps to 3.5% on increased treasury exposure which rose 2.8 ppts to stand at 39% to total assets as of March-end 2020. Net-interest income rose sequentially by 35% as interest income declined by 3 % q/q against a faster interest expense decline of 12% q/q. 
  • Non-interest income contracted by 31% q/q mainly on lower fees and commissions, bringing non-interest income at 13% to operating income, versus 22% a quarter earlier. 
  • Although OPEX expanded sequentially by 14% in 1Q20, cost to income ratio declined by 150 bps due to a faster increase in base, standing at 27% in 1Q20.
  • Non-performing loans ratio (NPL) ratio slightly improved by 19bps to record 7.1%, with sequentially lower Cost of Risk (COR) of 1.3%, to result in a lower provisions coverage ratio of 99%. 
  • Effective tax rate, declined by 2.5 pps, despite higher treasury exposure, recording 35% in 1Q20, down from 37% in 4Q19.
  • Balance sheet witnessed healthy sequential growth with gross loans growing by 4% q/q, while customer deposits grew at a slower pace by 1% q/q both were driven by the corporate segment. Bringing loan-to-deposit ratio to 31%.

SAUD is trading at attractive multiples; Maintain Overweight

We reiterate our Overweight recommendation on SAUD on FV of EGP14.00/share. The stock is trading at an annualized P/E20 of 1.7x, and P/B20 of 0.4x, on ROAE of 21%. BoD proposed 1:5 bonus share financed from 2019 net profit, which should improve share price performance.