CAL’s Q3 19 results were better than expected. Net income rose 30% yoy to GHS50mn, above our forecast of GHS43mn, largely due to higher-than-expected net interest income growth. Other positives include lower-than-expected net impairment charge and lower-than-expected increase in operating expenses (up 20% yoy vs 23% expected). These more than offset a sharper decline in non-interest income (down 61% yoy vs an expected decline of 30%). Compared with Q2 19 , PAT was up 11% yoy, driven by stronger margins.
Net loans were down 1% qoq against our expectation of 16% growth, which we think reflects the bank’s cautious lending practice as its asset quality deteriorated further (NPL ratio was up 260ps yoy and 100bps qoq). If this deterioration persists, it could present a downside risk for the bank and possibly weigh on future earnings. However, CAR is still quite high at 18%, which should support loan growth over the medium term. Deposits were flat qoq, in line with our expectation.
We reiterate our Buy recommendation (TP: GHS1.70, 127% ETR) supported by: 1) the bank’s lower cost of funds (down 80bps yoy to 6.3%); and 2) CAL’s strong medium-term loan growth prospects, which is in turn supported by strong CAR and 18ppts decline in net loans/deposits. CAL trades at 0.7x 2020f PB, a 25% discount to frontier peers.
Our recently updated sector report for Ghana banks can be found here.
| GHSmn | Q3 19 | Q3 18 | yoy | Q2 19 | qoq |
|---|---|---|---|---|---|
Net interest income | 132 | 100 | 32% | 125 | 5% |
Non-interest income | 10 | 26 | -61% | 27 | -63% |
Total operating income | 142 | 126 | 13% | 153 | -7% |
Operating expenses | 65 | 55 | 20% | 64 | 2% |
Pre-provision profit | 77 | 71 | 7% | 89 | -14% |
Net impairment charge | 5 | 18 | -71% | 27 | -81% |
Profit attributable to shareholders | 50 | 38 | 30% | 45 | 11% |
EPS | 0.08 | 0.06 | 30% | 0.07 | 11% |
Net loans | 2,477 | 2,268 | 9% | 2,500 | -1% |
Total deposits | 3,765 | 2,708 | 39% | 3,743 | 1% |
NII/assets | 7.8% | 8.26% |
| 8.7% |
|
Cost/income ratio | 46.1% | 43.4% |
| 41.8% |
|
ROE | 23.2% | 20.9% |
| 21.8% |
|
NPL ratio | 10.0% | 7.4% |
| 9.0% |
|