Earnings Report /

MCB Group (Mauritius): Solid H1 20 driven by foreign-sourced income

    Rahul Shah
    Rahul Shah

    Head of Corporate & Thematic Research

    Tellimer Research
    14 February 2020
    Published byTellimer Research

    MCB Group (Buy, TP MUR405) reported H1 20 net profit to shareholders of MUR5287mn, up 23% yoy and 3% ahead of our MUR5138mn forecast. The positive performance was driven by strong foreign-sourced income (58% of group profit, versus 50% last year), which is primarily generated through trade finance and structured project finance loans. We see good long-term prospects for this area, given MCBG’s funding cost advantages and superior access to hard currency deposits versus African peers, and reiterate our Buy rating, with a MUR405 target price.

    The shares are trading at 7.9x 2020f PE and 1.3x tangible PB. We forecast a normalised ROTE of 17.3%.

    Key risks include Mauritius’ structural trade deficit, which could put pressure on the currency, and MCBG’s sluggish domestic growth prospects (high existing market share of a mature banking system).

    Key positives

    • Revenues rose 14% yoy, ahead of our 13% forecast. However, the key driver of the beat was higher FX income and fair-value investment gains, which may not be sustainable.
    • The cost/income ratio fell to 37% from 40% last year. Operating costs rose 4% yoy versus our 7% expectation, supporting our view that the recent phase of high investment has passed.
    • Associate income rose 45% yoy on the back of improved results at BFCOI.

    Key negatives

    • Fee income rose only 1% yoy, which suggests management’s efforts to move into higher value-added areas are taking time to execute.
    • The cost of risk rose to 65bps, up 4bps yoy. However the NPL ratio fell to 4.0% from 4.3% a year ago.
    • Loan growth was limited (3% yoy, or 7% including corporate notes). We think loan growth will need to improve if top-line momentum is to be maintained.

    Management outlook

    Full-year results for FY 19/20 are projected to improve compared with last year, given the current level of business activity.