Earnings Report /
Egypt

Credit Agricole Egypt: Weak quarter despite balance sheet expansion

  • Earnings wane on lower margins, higher OPEX and provisions; Lending expands.

  • We reiterate our Overweight recommendation on CIEB on FV of EGP57.50/share.

  • CIEB is trading at an annualized P/E20 of 5.8, and P/B20 of 1.1x.

Earnings wane on lower margins, higher OPEX and provisions; Lending expands

CIEB 1Q20 consolidated net profit pre-minority and appropriations recorded EGP440 million (-11% q/q, -37% y/y) an annualized ROAE for FY2020 of 27%. The decline in profits was mainly attributed to lower NIM and non-interest income, higher OPEX and higher effective tax rate despite stable treasury investments.

1Q20 results key takeaways were:  

  • Margins declined from 7.0% in the previous quarter to 6.8% in 1Q20 as lending expanded on account of treasury investments, where treasury investments to total assets declined from 14% as of Dec-19 to 13% as of Mar-20.
  • Non-interest income plunged by 29% q/q and 13% y/y mainly on weaker 'other' operating income, where non-interest income to total operating income stood at 21% versus 27% in 4Q19.
  • Efficiency deteriorated by 3.9 ppts where the cost to income ratio recorded 35%, triggered by a decrease in operating income by 10% q/q against an expansion of OPEX by 2% q/q.
  • Booked provisions came in at EGP30 million which is 60% lower than the previous quarter, as asset quality continued to improve where the NPL ratio recorded 2.7% versus 2.9% in 4Q19. This implies a cost of risk of 0.5% vs 1.2% in 4Q19. Provisions coverage increased to 152% in 1Q20 from 140% in 4Q19.
  • Effective tax rate rose by 200bps to record 26%.
  • Loan portfolio kicked off the year by growing 4% q/q equally driven by both the corporate and retail segments. Customer deposits expanded by 2% q/q to result in an improved loan to deposit ratio (LDR) of 63% (+1 ppts) as of March-end 2020.
  • Capital adequacy ratio remained sequentially stable at 18.3%.

CIEB offers a decent dividend yield; Maintain Overweight

We reiterate our Overweight recommendation on CIEB on FV of EGP57.50/share. CIEB is trading at an annualized P/E20 of 5.8, and P/B20 of 1.1x.

We are currently revising our valuation assumptions in light of the current challenges faced by the economy resulting from the virus outbreak.