I reviewed Diamond Bank 2012 results already on this thread and had identified my concerns. They have now released their 2013 first quarter results which gives us an insight into their outlook going forward. Remember their share price was panned upon release of their 2012 Audited accounts but in typical bullish fashion has increased on the back of their 2013 Q1 earnings report.
So what has changed?
Net Interest Income rose 21% to N24.5billion (2013: N20billion) for the first quarter of 2013. Whilst this looked good on the surface, Net interest margins dropped to 72.4% (2012: 81%) as it cost more to lend. Operating profits increased also from N7.8billion in 2012Q1 to N8.7billion in 2013 Q1 but as mentioned earlier operating expenses sliced of 68% of Operating income this quarter compared to 65% in the prior period. At the end of the period pre-tax profits rose 11.3% to N6.2billion. Good to know the bank is still making profit and far more comforting that its lost loans was just 13.3% of Net Interest Income compared to 23% in the prior year.
There indeed is progress in the underlying results even though efficiency continues to posse a threat. The bank is also at cross roads as it continues to lend more (1.25% higher than lending in December 2012 already) making it vulnerable to structural defaults. Expectedly, the banks still needs to shore up its capital adequacy ratio as Net Assets is just 19% of its loans to customers, not much change from December 2012. As such, its impressive 5.6% return on equity is expected to drop in the coming quarters as the introduction of new equity will surely reduce earnings per share at least in the short term.
Should I then buy?
I could understand the bullish sentiments out there as their share price is intrinsically low trading at 84% its book value. It rose 2.7% to N6.31 today. Their ability to demonstrate that they can indeed raise badly needed funds is a metric for me to invest. But for now, I’d pass.