Skye Bank Plc. (12 months ended December 2014)
- Skye Bank Plc (Skye) released FY 2014 audited results wherein gross earnings rose 3% YoY to N136.7 billion, while both PBT and PAT plunged 47% YoY to N10.5 billion and N9.7 billion respectively. The released results show restated prior year numbers possibly in the light of the acquisition of Mainstreet Bank in Q4 14.
- The bank did not declare a dividend (FY 13: 30kobo) electing to issue a 1 for 20 scrip.
Strong NIR overrides flat interest income
- In line with pattern across coverage banks in Q4 14, where FX income provided a boost to top-line, NIR more than doubled QoQ to N11.3 billion offsetting flat movement in interest income from Q3 14 to N28.3 billion. Consequently, gross earnings for the quarter were 19% higher QoQ at N39.6 billion. The flat trend in Q4 14 interest income reflects lower asset yields (-2.4pps QoQ to 8.9%) as interest earning assets rose 29% QoQ with increases across all items: Cash (+88%), loans (+13%) and securities (+29%).
Jump in provisioning drives quarterly loss
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- Despite a 47% QoQ rise in Q4 14 interest expense to N14.2 billion, annualized WACF shrank 30bps QoQ to 4.1%. The tamer funding costs amid expansion in interest bearing liabilities (+17% QoQ to N1.1 trillion), underpinned by higher deposits (+29% QoQ to N952 billion), suggests Skye benefitted from cheap deposits post merger with Mainstreet.
- Relative to prior quarter, operating expense shrank 1% QoQ to N15.8 billion resulting in CIR shrinking 6pps QoQ to 62%. Nonetheless, impairments reversed largely benign trend over prior quarters (9M 14 average: N2.5 billion) spiking over four fold to N11.5 billion. The jump in provisioning resulted in annualized cost of risk rising 120bps QoQ to 3%. Consequently, Skye bank reported a pre-tax loss of N1.9 billion (Q3 14: PAT of N5.1 billion) whilst a tax credit of N1.7 billion helped pare post-tax loss to N125 million for the Q4 14.
Macro headwinds and capital raising issues post integration cloud outlook
- Going into 2015, several pertinent issues appear on the horizon for Skye after these weak set of numbers. Firstly as with the broader industry, weaker domestic landscape should drive a more cautious approach to risk asset creation whilst loss of FX volatility post implementation of order based two-way quote system and cutback in COT suggests muted revenue prospects. Secondly, Skye has to grapple with concerns over asset quality given sizable oil and gas, general commerce and public sector loans which cumulatively account for 38% of loan book (9M 14). Lastly, following Q4 14 acquisition of Mainstreet bank, concerns over a dilutive capital raise, which management guided to over H2 2015, and integration issues at the acquisition are pivotal to Skye’s outlook over the rest of the year. Pending engagement with management on the aforementioned issues we see enough in the outlook to point to lowered rating for Skye. The stock trades at a discount on P/E (2.9x vs. peers at 5x) and P/B (0.2x vs. peers at 0.9x) respectively. Our estimates are under review.
- Source: ARM
Disclosure – This article was culled from ARM Research newsletter and was not solely written for Nairametrics. The author of this article wrote it themselves, and did not write this article on behalf of Nairametrics.
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