Equity Analysis /
Egypt

ATLC: Healthy earnings despite sequentially weaker topline

    Fee income and extras support earnings; New lease bookings grow steadily 

    ATLC 1Q19 bottom line recorded EGP18.8mn (-2% q/q, +16% y/y) in line with our reviewed estimates for 2019 of EGP74 mn. Topline showed sequential weakness despite solid growth of new originations. Key takeaways this quarter were:

    • Net fees surged on high new loan bookings, where it stood at 23% of operating income versus 14% in 4Q19, which is unusually high, partially due to the low interest income contribution.
    • Efficiency improved where cost-to-income ratio declined to 36% despite the lower base.
    • Interest generated on cash management supported earnings and expanded by 21% q/q. 
    • New lease originations rose by 12% q/q in 1Q19 recording EGP324 mn, with outstanding lease portfolio of EGP2.6 bn.
    • Leverage ratio hit 6.7x, and we see the company starting to take the path of profit retention to be able to sustain lease portfolio expansion in light of the new capital requirements by the new leasing law.

    However,

    • Margins contracted due to a decline in interest income against an increase in interest expense, NIM recorded 3.8% down from 4.8% in the previous quarter, probably on maturing contracts where outstanding leased portfolio grew by only 1% q/q despite a 12% growth of new bookings that probably took place towards the end of the quarter.

    Maintain Overweight 

    ATLC is amongst the top five leasing companies in Egypt in terms of market share. The company follows a tight risk management policy as it operated on a 0% delinquency rate over the past twelve years. The majority of ATLC’s leased asset portfolio is dominated by real estate with a contribution ratio of 73% as of Mar-19 which falls in line with the general market trend. 

    The stock is currently trading at P/B19 of 1.0x and P/E19 of 4.5x versus emerging peer group average of 1.4x P/B19 and 10.3x P/E19. The stock is awaiting a 0.17:1 stock dividends which might improve price performance.