Culled—Proshare

April 24, 2018/FBNQuest Research

Limited changes to earnings forecast and valuation 

Following Stanbic IBTC Holdings’ (Stanbic) Q1 2018 results, we have made modest changes to our forecasts going forward. Although the bank’s PBT beat our forecast by 33%, we have not carried forward the full extent of this positive surprise for two reasons. First, the surprise was driven by recoveries. 

A few weeks ago, the bank had guided to a full year cost of risk assumption of <5%. Our new forecast on this line assumes 3.4%, implying more than a 100bp cut to our previous forecast. We understand from the bank that the cost of risk guidance is unchanged despite the scale of the positive surprise on this line. Second, we believe some caution is warranted given that the NPL balance rose 17% q/q (this was driven by a real estate exposure). 

We have reflected the weaker-than-expected funding income result in Q1 in our projections also, driven by weaker margins and the q/q decline in the loan book. At the same time, we have substantially increased our non-interest income, capturing the impressive growth in asset management fees. The net change to our revenue forecasts is modest as the former offset the latter. A cut to the risk free rate forecast of 100bps to 13% in our valuation to reflect the trends in FGN bond yields explains the slight increase of 3.7% to our price target to N41.3. We still see downside potential, of -17.5%, from current levels. As such, we reiterate our Underperform rating on the stock.

Recoveries boosted Q1 PBT 
Stanbic’s Q1 2018 PBT of N27bn grew 43% y/y. Revenue growth was mixed: funding income came in flattish y/y while non-interest income grew 38% y/y. 

Notwithstanding, total revenues grew by a healthy 20% y/y and helped to offset a 47% y/y rise in opex. An oil and gas related write-back of N5.1bn also helped, compared with a provisions charge of –N3.3bn a year earlier. 

PAT grew slower than PBT (by 24% y/y) because of a loss of –N2.2bn on the other comprehensive income, mainly due to the mark-to-market losses on financial assets. The bank’s earnings were ahead our forecasts by 34%. 

The variance was driven mainly by the write-back indicated above. We had expected a loan loss provisions charge of -N3.6bn. On a q/q basis, profit before provisions was only slightly up, as relatively weaker funding income was offset by the growth on the non-interest line. On the balance sheet, a – 9% q/q decline in the loan book follows the trend seen in the results of tier 1 banks: Zenith (-16% q/q) and GT Bank (-7% q/q). On the flip side, deposits grew by 6% q/q.