Equity Analysis /

Egyptian Gulf Bank: 2Q19: Bottom line increases on lower provisions; weak balance sheet growth

    Al Ahly Pharos Securities Brokerage
    25 August 2019

    Lower booked provisions drive earnings growth; lending shrinks

    Egyptian Gulf Bank 2Q19 net profit pre-minority interest and appropriations came in at EGP166 million, increasing by 14% sequentially and growing by 13% annually with an ROAE of 17%. 2Q2019 results key takeaways were:

    • Treasury exposure to total assets fell by 487 bps in 2Q19 to record 19%, resulting in a stable NIM sequentially, standing at 3.2% in 2Q19.
    • Non-interest income to operating income plunged sequentially by 578 bps q/q to score 16%, mainly due to lower net fees and commissions (-32% q/q). 
    • OPEX rose sequentially by 10% in 2Q19, while operating income declined by 7% which resulted in a higher cost to income ratio, surging by 8 pps, to record 53% in 2Q19.
    • Lower booked provisions, dropping sequentially by 86% resulting in a COR of 0.2% in 2Q19, down from 1.2% a quarter earlier, with a plunge in coverage ratio by 136 pps, recording 110%. Asset quality deteriorated, with a surge in NPL ratio by 208 bps, standing at 3.7% in 2Q19. 
    • Lower effective tax rate, falling by 715 bps to stand at 32.9% in 2Q19, down from 40.1% in 1Q19.
    • Balance sheet witnessed a sequential shrinkage with gross loans declining by 5 pps q/q, versus an average of 0% over the past four quarters, and customer deposits dropped by 5% q/q, versus an average of 1% over the past four quarters, bringing Loan-to-Deposit ratio to 46% in 2Q19.

    EGBE is trading at expensive multiples compared to peers, we maintain our Equalweight on FV of USD0.66 

    We reiterate our Equalweight recommendation on EGBE on FV of USD0.66/share. The stock is trading at P/E19 of 5.6x, and P/B19 of 0.7x, on projected ROAE of 12%. Egypt’s sector average P/E19 and P/B19 are 4.6x and 1.0x, respectively.