Equity Analysis /

Cooperative Bank: CO-OP BANK: Q3 17: NPLs touch record high on a weak quarter

    Faith Mwangi
    Faith Mwangi

    Equity Research Analyst, Financials (East Africa)

    Tellimer Research
    12 November 2017
    Published byTellimer Research
    Co-op Bank announced Q3 17 numbers with EPS of KES2.2. PAT was down 9.5% yoy. Performance was disappointing with the key lowlight being the NPL ratio, which ticked up to 6.2% from 4.5% in H1 17. In addition, net interest income was down 7.3% yoy.
    Management still confident of achieving a flat PAT in FY 17; we are less optimistic. Management expects subsidiaries to do well in the remaining quarter, but these only contribute c5% of PAT and would need very strong performance in Q4 17 to achieve the set target. Management is also bullish on the reversal of incurred NPLs within the quarter. In our view, we think achieving flat performance will be a tall order unless the bank can post better net interest margins in Q4 17. Also, costs will have to be contained, while we expect staff costs to tick further up to reflect employee rewards.
    We maintain our HOLD recommendation. Although the bank has delivered above expectations on balance sheet growth, income statement performance is slightly below our expectations. The bank is trading at a forward P/B of 1.38x, which is a slight premium to the sector average 1.34x. Our DCF-based target price of KES17.80 suggests an ETR of 14%, hence our HOLD recommendation.