Equity Analysis /

Credit Agricole Egypt: 2Q19 – Bottom line declines qoq, but balance sheet growth continues

    Al Ahly Pharos Securities Brokerage
    7 August 2019

    Provisions reversal supports earnings amid high cost of funds; Loan to deposit ratio improves

    CIEB released 2Q19 net profit pre-minority and appropriations of EGP611 million (-12% q/q, +25% y/y) with an annualized ROAE of 44%. The sequential decline in profits is mainly attributed to weaker margins despite continued provisions reversal, of EGP81 million, which provided earnings support. 

    Key takeaways

    • Margins fell on higher cost of funds mainly on funds from other banks amid customer deposits contraction and the high paced growth of loans. NIM sequentially fell by 30 bps, but remained solid recording 7.3%.
    • Operating income was equally dragged down by net interest income, which declined by 4% q/q, and non-interest income which recorded the lowest figure over the past five quarters of EGP207 million declining by 11% q/q and 5% y/y. 
    • Efficiency slightly improved with the cost to income ratio recording 31%, triggered by a decline in operating expenses, falling by 9% q/q.
    • Provisions reversal, of EGP 81 million, provided the major boost to bottom line with a stable non-performing loans ratio of 3.0%. Provisions coverage declined to 145% in 2Q19 from 158% in 1Q19.
    • Effective tax rate was stable in 2Q19, recording 20%.
    • Loan portfolio grew by 4% q/q and 15% y/y bringing YTD loan growth to 11%, while customer deposits continued contracting by 1% q/q bringing YTD decline to 5%. As a result, the loan to deposit ratio (LDR) recovered from 55% as of March 2019 ending balance to 57% as of June 2019 ending balance. 
    • Capital adequacy ratio strengthened to stand at 17.7% as the growth of risk weighted assets (RWA) softened to 7% versus 12% in the previous quarter.

    CIEB offers a decent dividend yield; Maintain Overweight

    We reiterate our Overweight recommendation on CIEB on FV of EGP55.00/share. CIEB is trading at attractive multiples of P/E19 of 6.6x, and P/B19 of 2.0x, which is below COMI’s P/E19 of 10.7x, and P/B19 of 2.3x, but above Egypt sector average of P/E19 4.4x and P/B19 0.9x. CIEB is among our top dividend plays with an expected dividend yield of 9.1% in 2020.