Culled—Proshare

April 25, 2017/FBNQuest Research

Event: Diamond Bank reports Q4 2016 results

Implications: Neutral reaction expected by the market

Positives: Funding income up 19.1% y/y to N28.8bn

Negatives: Loss after tax of c. N1bn largely driven by a negative result on the other comprehensive income line

Late yesterday, Diamond Bank published its Q4 2016 results which showed pre-provision profits of N45.1bn, down by -5% y/y. Non-interest income fell -30% y/y to N16.3bn, offsetting a 19% y/y growth in funding income. Q4 PBT came in at N1.1bn compared with a loss before tax of –N11.5bn in the corresponding quarter of 2015. PBT was supported by a -47% y/y decline in provisions which offset a 9% y/y rise in operating expenses.

Diamond Bank reported a loss after tax of –N988m on the back of a high tax charge and a loss on the other comprehensive income line of –N1.1bn. Sequentially, pre-provision profit was up 14% q/q, boosted again by non-interest income which grew by 46% q/q. Funding income came in flattish q/q. Provisions declined -12% q/q while operating expenses came in flattish.

Diamond Bank’s PBT of N1.1bn compares with a loss before tax of –N6.5bn reported in Q3.  On a full year basis, profit before provisions came in flattish y/y at N161.1bn as a -2% y/y decline in funding income offset a 7% y/y rise in non-interest income. PBT declined by -29% y/y to N5.0bn as provisions rose 7% y/y to N59.0bn. PAT, however, was up 52% y/y following a significant rise in other comprehensive income to N8.6bn.

Compared with our estimates, profit before provisions beat by 10%. Non-interest income was the primary driver of the variance, coming in 27% ahead of our N12.8bn estimate.

Funding income was broadly in line with our forecast. The magnitude of the variance on the non-interest income line offset a negative surprise in provisions of 15%. PBT of N1.1bn was ahead of our –N268m estimate. However, Diamond Bank’s reported loss after tax of –N988m came in well behind our –N281m estimate due to a loss of –N1.1bn on the other comprehensive income line. Compared with consensus, FY 2016 PBT of N5.0bn came in well ahead of consensus PBT estimate of N3.1bn.

Diamond Bank’s cost of risk comes in at around 6.7% vs. our 5.5% estimate for 2016 and compares with a tier 2 (excluding Skye Bank) average of c.2.8%. We expect a neutral to negative reaction by the market to these numbers given that (i) year-to-date, Diamond Bank shares have appreciated 8%, outperforming the market by 12% (they significantly underperformed the market in 2016 (by -56%), (ii) the loss after tax and (iii) the absence of a dividend, though expected.

We rate the stock Underperform. Our estimates are under review.

Diamond Bank Q4 2016 results vs. FBNQuest Research estimates