Stanbic’s Q2 19 results were broadly in line with our forecasts. Pre-provision profits (PPP) fell 7% yoy to NGN22.0bn, weighed down by weaker asset yields (in line with the sector trend) and a reduction in fee margins for the wealth segment (due to revisions to pensions regulations). The bottom line was further pressured by a normalisation in the cost of risk to c0.7% following a net recovery booked in the prior year, and a 3ppts yoy increase in the effective tax rate to 19%. PAT was down 15% yoy to NGN17bn, slightly below our NGN18bn expectation. An unchanged interim DPS of NGN1.00 was declared, as expected, which implies a yield of c2.9%. Relative to Q1 19, PPP was flat and PAT fell by 11%, due to the higher cost of risk.
Reiterate Buy rating – with NGN56.00 TP and ETR of 69% – on Stanbic, which, along with Zenith and GTB, is one of our favoured Nigerian banks. Despite the decline in earnings for Stanbic, its ROE remained strong at 28.5%, exceeding that of most peers and our cost of equity estimate of 19.3%. We remain positive on the stock on a long-term view, on the basis of: 1) its highly profitable wealth segment; 2) robust capital adequacy ratio and NPL provisions coverage (21.7% and 131%, respectively, after fully adjusting for IFRS 9); and 3) potential to offer more diversified digital financial products than most peers, leveraging the breadth of the group’s operations. Stanbic trades at 1.5x FY 19f PB versus frontier banks at 1.0x.
Gross loans rose 9% qoq and deposits rose 11% qoq, ahead of peers, with loan growth driven for the most part by the communications and oil & gas sectors. There was also a pickup in the non-performing (stage 3) loan balance, driven by the personal and business banking segment, although the bad loan ratio of 3.9% for the group was below the Central Bank of Nigeria's (CBN) prescribed ceiling of 5.0% (and the lowest for our coverage) and the NPL provisions coverage was well over 100%. The trend in deposits was encouraging, particularly as it was driven by current and savings deposits, which made a 69% contribution (up 4ppts qoq) to the total balance. Gross loans/deposits for the group stood at 58%, before any adjustments for retail/SME loans, which is just below the CBN’s 60% minimum threshold.
Table 1: Financial results summary
| NGNmn | Q2 19 | Q2 18 | yoy | Q1 19 | qoq |
|---|---|---|---|---|---|
Net interest income (NII) | 19,125 | 21,318 | -10% | 20,185 | -5% |
Non-interest revenues | 27,848 | 26,096 | 7% | 27,004 | 3% |
Total income | 46,973 | 47,414 | -1% | 47,189 | 0% |
Total opex | 24,998 | 23,768 | 5% | 25,071 | 0% |
Pre-provision profit | 21,975 | 23,646 | -7% | 22,118 | -1% |
Net attributable profit | 16,482 | 19,355 | -15% | 18,531 | -11% |
Net loans | 455,075 | 403,317 | 13% | 413,548 | 10% |
Total deposits | 822,480 | 767,372 | 7% | 739,297 | 11% |
NII / assets | 4.78% | 6.14% |
| 4.98% |
|
Cost / income | 53% | 50% |
| 53% |
|
ROA | 4.12% | 5.57% |
| 4.57% |
|
NPL ratio | 3.91% | 8.57% |
| 3.99% |
|
NPL provisions coverage | 131% | 97% |
| 150% |
|
Source: Company accounts, Tellimer Research