A bad end for the year due to weak top-line and higher opex
ATLC 4Q21 net income recorded EGP17 million (-21% q/q, -11% y/y), bringing 2021 full-year net income to EGP134 million (+81% y/y). The sequential and annual decline took place due to: 1) a decline in the top-line by 17% q/q, and 5% y/y, 2) increase in OPEX (+3% q/q, +21% y/y) driven by higher admin expenses (+3% q/q, +22% y/y) along with higher depreciation and impairment sequentially and annually, 3) higher FX losses on a quarterly basis (+187% q/q), and 4) higher taxes as the effective tax rate recorded 26% in 4Q21 (+2 pps q/q, +2 pps y/y). The decline came in despite the provisions reversals of EGP1.4 million booked in 4Q21, compared to provisions of EGP1.7 million in 3Q21, and EGP0.86 million in 4Q20.
4Q21 key takeaways:
Post securitisation, new lease contracts amounted to EGP951 million, bringing the outstanding lease portfolio to EGP3.9 billion as of December 2021 (+8% q/q, +32% y/y). This implies healthy growth of the leasing portfolio.
NIM stood at 5.9% in 3Q21 (-0.2 pps q/q, -0.001 pps y/y). The sequential decline came in stronger since the revenue generated from leasing and factoring activities slightly grew (+0.9% q/q ) on a sequential basis on the back of the limited decline of 0.4% q/q in income from leasing activities, despite the significant growth of the factoring income (+73% q/q) whose effect is still not evident due to its small contribution to the total revenue. On the other hand, the annual limited decline came in due to the high costs of financing which expanded by 16% on an annual basis, despite an 8% growth in total revenues driven by both the leasing and factoring activities.
Fees income stood at EGP3.0 million, implying a 56% and 159% sequential and annual increase, respectively. However, this did not reflect on the gross profit, since the effect of the top-line decline was much stronger.
Opex increased by 3% sequentially and expanded by 21% annually on the back of higher selling and admin expenses which recorded EGP20 million in 4Q21 (+3% q/q, +22% y/y). The annual increase is much larger than the sequential increase due to the higher depreciation expense on annual basis, which recorded EGP2 million in 3Q21 (+1% q/q, +10% y/y).
Looking at the total expenses, it witnessed an 11% q/q decline and 8% y/y growth. The expenses were supported in 4Q21 by the reversals of EGP1.4 million compared to provisions of EGP1.7 million in 3Q21 and provisions of EGP0.86 million in 4Q20. Despite the reversals, the bottom-line still declined in 4Q21 sequentially and annually due to the weak top-line and high opex which were not wiped out by the provisions reversals.
The cost-to-income ratio expanded sequentially by 8 pps and annually by 9 pps to stand at 49%. The expansion came on the back of the growth that took place in selling and admin expenses compared to the decline that took place in the operating profits.
The leverage ratio stood at 7.6x, which is lower than the maximum leverage ratio for leasing companies of 9.0x. This implies the effect of the securitisation issuance that took place in 1Q21.
Securitisation gains and provisions reversals provide extra support for the full year bottom-line
Revenue generated from leasing and factoring activities increased by 6% recording EGP547 million, compared to EGP514 million in 2020. The growth is driven by the leasing and factoring income, where the leasing income expanded by 5% recording EGP539 million, while the factoring income expanded significantly recording EGP7 million, up from EGP0.1 million last year. However, the leasing income still contributes the most to the total interest income (99% as of 2021).
Net interest income expanded by 19% due to the limited increase in the costs of financing (0.1% only), coupled with the strong growth in the total interest income.
Fees income stood at EGP8.3 million, implying a 20% y/y increase. However, this translated to only a 16% growth in net fees, since the direct costs of leasing expanded by 39% over 2021.
Opex surged by 34% y/y, on the back of increased selling and admin expenses (+29% y/y), depreciation of fixed assets (+105% y/y), in addition to the impairment of intangible assets (+285% y/y).
ATLC reversed provisions amounting to EGP2 million, compared to provisions of EGP4.3 million in 2020. This was driven by reversals booked in 2Q21 and 4Q21, amounting to EGP3 million and EGP1.4 million, respectively. However, reversals were insufficient to wipe out the negative effect of the increased OPEX completely, as total expenses still increased by 23% y/y recording EGP84 million.
2021 bottom line recorded EGP134 million, which is 81% higher than 2020. This significant increase came in mainly as a result of the securitisation gains booked in 1Q21 amounting to EGP65 million, and provisions reversals of EGP2 million compared to booked provisions of EGP4.3 million in 2020. To isolate the effect of the one-off gain, we used an average tax rate of 24% calculated over 2019-2020 to calculate an estimate of the bottom-line in 2021 excluding the securitisation gain. Our estimate for the bottom line excluding the one-off gain amounted to EGP84 million, which is 14% higher than the bottom line in 2020. This implies healthy growth of the company supported by its leasing activities, top-line growth, and provisions reversals as well.
Expected to outperform in the future; upgrade to Overweight
Given the company's strong leasing momentum over the past years, we expect its portfolio to witness significant growth over the coming 5 years, which would trigger the need for more securitisation issuances to maintain the leverage ratio below the minimum requirement of 9.0x, thus, allowing the company to book more securitisation gains along with the income generated from its normal leasing and factoring activities. Despite the fact that the bottom-line in 2021 was partially driven by one-off gains, the company’s margins remained stable over the year, and by analysing the bottom-line excluding the one-off gains, the company reflected positive performance. Margins stood at their lowest in 4Q21 which is usually the case in the leasing industry at the end of each year. We believe that the increased opex is temporary since the company is still heavily investing in its resources. Accordingly, we upgrade our recommendation on ATLC on FV of EGP7.00, given the expected growth in portfolio and bottom-line.
The stock is currently trading at P/B22 of 0.9x and P/E22 of 4.1x, on an ROE of 25%.