EGH reported net attributable profit of GHS445mn (up 31% yoy) and 6% ahead of our forecast of GHS420mn. The outperformance was mainly driven by higher net interest income (as loans grew by 30% yoy) and lower-than-expected operating expenses.
EGH also saw impressive loan growth, up 16% qoq, as capital ratios improved (up 3.8ppts yoy) to 18.6%. Asset quality also improved as the NPL ratio contracted by 6ppts to 7.3%.
Maintain Buy – our unchanged TP of GHS9.1 suggests an ETR of 27%
EGH currently trades at a 2020f PB of 1.1x, a 30% premium to Ghana peers. We are attracted to its recent strong non-interest income (NIR/revenue stands at 33%) as well as operating efficiencies supported by a robust digital infrastructure, and potential for strong loan growth (loans/assets at 41%) as its capital ratios have improved. ROE remains high at 29% in FY19 and in excess of EGH’s CoE.
Key positives:
(1) Strong non-interest income growth (up 21% yoy), driven by increased fee and commissions as EGH enjoys the benefits of its extensive digital banking channels.
(2) An increase in net interest income (up 8% yoy), led by income from loans which were up 30% yoy. An improvement in capital ratios via retained earnings saw CAR rise to 18.6% in FY 19 from a dangerously low level of 14% in FY 18 vs the regulatory minimum of 13%.
(3) A further moderation in the NPL ratio (down 2.7ppts qoq to 7.3%), which we think might be connected to the repayment of BDC legacy loans in 2019.
(4) An improvement in cost/income ratio, which was down 5.7ppts as salary costs fell 6% yoy, helped by EGH’s digital channels which continue to drive lower cost of service.
Key negatives
Net interest income/assets remained relatively flat over the period, which we think is due to the slightly lower yield environment as the BoG continues to try to bring down lending costs to encourage SME and household lending.
Outlook
Management expects to continue to record strong double-digit growth in loans. However, if retail loans continue to grow, we could see a worsening in asset quality.
| FY 19 | fy 18 | yoy | 9M 19 | qoq | |
|---|---|---|---|---|---|
| Net interest income | 1,068 | 878 | 22% | 737 | 45% |
| Non-interest income | 518 | 430 | 21% | 384 | 35% |
| Total operating income | 1,586 | 1,307 | 21% | 1121 | 41% |
| Operating expenses | 722 | 674 | 7% | 521 | 39% |
| Pre-provision profit | 864 | 634 | 36% | 1,054 | -18% |
| Net impairment | 217 | 129 | 67% | 121 | 79% |
| Net attributable profit | 445 | 340 | 31% | 258 | 72% |
| Net loans | 5,380 | 4,150 | 30% | 4,637 | 16% |
| Total deposits | 9,729 | 7,609 | 28% | 9,100 | 7% |
| NII margin | 9.02% | 8.98% | 8.16% | ||
| Cost/income ratio | 45.8% | 51.5% | 46.40% | ||
| ROE | 28.6% | 28.8% | 30.60% | ||
| NPL ratio | 7.32% | 13.3% | 10.0% | ||
| CAR | 18.6% | 14.7% | 14.1% |