Culled—Proshare
March 20, 2018/FBNQuest Research
8-10% cut to our 2018-19E EPS and price target
Stanbic IBTC Holdings’ (Stanbic) Q4 2017 PBT missed our forecast by 22% largely due to negative surprises on provisions and opex. Consequently, we have cut our 2018-19E PBT forecasts by around 8% on average and our price target by 10% to N39.8. Following a write down of c.N21bn in Q4 2017 and potential recoveries in 2018, management expects cost-of-risk to moderate to under 5% in 2018 from c.7% in 2017.
We have adjusted our cost-of-risk forecast to 4.7%, to reflect management’s guidance. With a charge of 80% taken on its 9mobile exposure, we believe this is adequate and should prevent further surprises in 2018. Our funding and non-interest income growth forecasts in 2018E are similar – slightly over 10% y/y, partly reflecting a similar magnitude of loan growth, and, to some extent, base effects.
These growth rates underpin our 32% y/y PBT growth forecast for 2018E. At current levels, the shares are trading on a 2018E P/B multiple of 2.1x for 27.2% ROAE in 2019E or a premium to the 0.87x 2018E multiple for 14.2% ROAE that our universe of banks is trading on. Our forecasts imply a 2018 ROAE of 29.5%. Having gained 18% year-to-date (vs. 9.4% NSE ASI) our valuation implies a downside potential of -19% from current levels. As such, we downgrade our rating on the shares to Underperform from Neutral.
PBT up 35% y/y due to stellar y/y growth in non-interest income
Stanbic’s Q4 2017 results showed that PBT of N15.5bn grew by 35% y/y while PAT came in at N14.2bn, up 25% y/y. Both revenue lines were up, but the non-interest income result was the more striking of the two, increasing by a stellar 63% y/y to N24.9bn. Funding income managed a 10% y/y growth to N20.6bn.
Loan loss provisions also increased, by 16% y/y, but this increase was surpassed by that of revenue growth. A higher tax rate (31% vs 27.4% a year ago) explain the slower growth in PAT relative to PBT.
Q/q movements were modest across the P&L, except for the other comprehensive income (OCI) line where the N4.1bn reported compare with N323m in Q3. Compared with our estimates, while the PBT missed by 22%, PAT was in line thanks to the OCI result. The results were broadly in line with consensus.
