Snapshot:

• PAT beat estimate despite lower run rate 

• Loan portfolio up 19% q/q in Q2’18 – deviating from industry trend 

• Loan loss provision estimate cut following H1 write back 

• Board of Directors proposed an interim dividend per share of N1.00 

• TP revised to N50.07 (Previous: N42.38) 

PAT beat estimates despite moderating q/q run rate 

17 August 2018 : STANBIC released its H1’18 results, posting strong y/y performance following another impressive quarter. Although the run rate recorded in Q2’18 marginally lagged performance from the earlier quarter, H1’18 earnings still came in largely ahead of analyst's estimate as PAT rose 79% y/y to N43.1 billion – better than their N36.9 billion estimate. Notably, Gross Earnings came in flat q/q at N57 billion as a modest 3% q/q rise in Interest Income offset a 6% moderation in Non-Interest Income. Analysts highlight that this trend deviates from the trend analysts have observed across other banks in Q2’18. Amidst the sticky interest rate environment as well as negative loan growth in the industry, Interest Income has declined mildly across most banks whilst improving business activities have supported Non-Interest Income. However, STANBIC grew its loan book by 19% in Q2’18 standalone – taking ytd loan portfolio to 8% growth. Furthermore, with customer deposits down 1.3% in Q2’18, Interest Expense moderated to N9.1 billion within the quarter (Q1’18: N10.7 billion) – translating to N19.8 billion for the H1’18 period. 

Maintaining the trend observed in Q1’18, STANBIC recorded an additional net recovery of N394 million in Q2’18 on previously written off loans. Consequently, the Group recorded a cumulative net loan loss write back of N5.5 billion for H1’18 vs. analyst's estimated loan loss provision of N3.9 billion and the N14.0 billion recorded in the prior year. With this, Operating Income rose 48% y/y to N99.5 billion – 4% ahead of analyst's N95.4 billion estimate. Overall, despite a 28% y/y rise in Operating Expense to N48.8 billion (Vetiva: N49.8 billion), PAT rose by an impressive 79% y/y to N43.1 billion – beating analyst's N36.9 billion estimate. The Board of Directors proposed an interim dividend per share of N1.00 – translating to an interim dividend yield of 2%. 

TP revised to N50.07 (Previous: N42.38) 

Analysts have revised their estimates to reflect the miss across key line items. Particularly, analysts note that quarterly earnings run rate moderated marginally in Q2’18 following a much lower loan write back within the period vs. Q1’18. Following the strong growth observed in Q2’18, analysts revise their loan growth forecast for FY’18 to 10% (Previous: 0%). Hence, their Interest Income estimate is largely unchanged at N130 billion despite the H1’18 miss. Similarly, their Non-Interest Income is maintained at N108.4 billion – in line with H1’18 run rate. However, analysts cut their loan loss provision to a mild N1.3 billion – a relatively cautious stance given the N5.5 billion write back so far in H1’18. With Operating Expense also left relatively unchanged at N97.7 billion, analysts raise their PAT estimate to N79.2 billion (Previous: N73.7 billion), translating to an EPS of N7.88. With average industry leading RoE and RoA of 36.2% and 5.6% respectively, STANBIC trades at FY’18 P/B: 2.1x and P/E: 6.3x vs. analyst's coverage banks’ average P/B: 0.7x and P/E: 3.8x. Overall, analysts raise their Target Price (TP) to N50.07 (Previous: N42.38). 

Business Description 

Stanbic IBTC Holdings is a member of Standard Bank Group. Standard Bank Group is Africa’s largest banking group ranked by assets and earnings and has been in business for over 150 years. With a controlling stake of 53.2% in Stanbic IBTC Holdings PLC, Standard Bank employs over 52,000 people worldwide; operates in 18 African countries including South Africa and 12 countries outside Africa including key financial centres like Europe, United States and Asia.

Reporting for EasyKobo on Friday ,17 August 2018 in Lagos, Nigeria

Source: Olalekan Olabode from Vetiva Capital Management Limited