Equity Analysis /
Egypt

Credit Agricole Egypt: Q1 19: Provisions reversal boosts earnings; solid balance sheet growth; Maintain Overweight on FV of EGP55.00

    Bottom line boosted on provisions reversal; Margins remain stable

    CIEB released strong 1Q19 net profit pre-minority and appropriations of EGP694 mn (+32% q/q, +15% y/y) with an annualized ROAE of 48%. Strong performance is mainly attributed to provisions reversal of EGP154 mn. 

    Key takeaways

    • NIM remained sequentially stable at 7.2%, where interest income and interest earning assets remained almost stable. 
    • Non-interest income expanded by 3% q/q with no major impact on operating income which stayed sequentially stable. 
    • Efficiency slightly deteriorated as operating expenses grew by 4% q/q against a stable base of operating income, dragging down net operating income by 2% sequentially.
    • Provisions reversal provided the major boost to bottom line in tandem with an improving non-performing loans (NPL ratio) from 3.3% in the previous quarter to 3.0% in 1Q19. Provisions coverage declined to 158% in 1Q19 from 168% in 4Q18.
    •  Lower effective tax rate was noted in 1Q19, recording 20% in down from 22% in 4Q18.
    • Loan portfolio grew by 7% q/q and a strong 25% y/y, while customer deposits came in 4% lower than the previous quarter and 10% higher than March 2018 ending balance.
    • Capital adequacy ratio reached 17.5% in Mar-19 down from 21.9% in Dec-18, on higher RWA and lower capital.

    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 10.3x, and P/B19 of 2.2x, but above Egypt sector average of P/E19 4.7x and P/B19 0.9x. CIEB is among our top dividend plays with expected dividend yield of 9.1% in 2020.