The research unit of ARM Pensions has placed a “sell” rating on Stanbic IBTC following the release of its 2015 FY results. The bank had delayed the release of the results due to a legal tussle it had with the Financial Reporting Council over licensing fees with its parent company.
ARM notes that while the full year results showed impairments came in better than they had projected, the “results were largely weaker as the bank tried to front-load feedthrough from the macro pressures to loan book”.
They also projected a weaker outlook for the bank in 2016 (yet to release any result) as hawkish monetary policy, legal wrangles, and naira depreciation could posse a problem when results start to kick in.
Stanbic reported a 45% drop in profits for the year ended December 2015. Most Nigerian banks reported weak earnings in 2015 but went ahead to declare stronger earnings in 2016 as they benefited from the fallout of the currency policies.
Stanbic’s share price was N14.21 as at the time of writing this article. It has returned -14% YTD.
Here is ARM’s note.
CommentaryLine in the sand on FRC battles? Nearly a year after the end of the 2015 financial year, Stanbic IBTC Holdings Plc. (Stanbic) released its audited FY results after claiming to have reached ‘an acceptable settlement with the Financial Reporting Council of Nigeria (FRCN)’. Despite the deal, Stanbic noted that it has now amended its appeal at the courts over the alleged illegality of arrangements with its Stanbic SA (SBSA) over licensing of its banking software license.
Furthermore, the released results include restatements to its prior year results to capture new FRC rules, in March 2016, on accounting for technology transfer arrangements involving NOTAP, though the company noted that these adjustments did not result in additional current income tax liabilities.Focusing on the results, Stanbic reported 45% YoY declines in PBT and PAT to N23.7billion and N18.9billion respectively. Relative to our estimates, earnings were ahead on account of lower credit impairment charge in Q4 15 of N2.4billion relative to our N4.6billion estimate. In addition, Stanbic declared a final dividend per share of 5kobo (Interim: 90kobo) which translates to FY 15 payout of 50% and implies a dividend yield of 0.4% on current pricing.
Cutback in loan loss charges bolsters Q4 earnings: Over 9M 16, Stanbic adopted an aggressive stance on provisioning which drove elevated impairment charges over 9M 16 as NPL climbed 220bps from FY 14 to 8.8%. Thus, management had guided to lower provisioning for FY with Q4 15 reading falling 46% QoQ. The tamer provisioning combined with stronger NIR (+20% QoQ) drove a 42% QoQ rise in earnings in the last quarter of 2015.
NIMs hold steady on delayed loan repricing: In line with our discussions with management at the time, Stanbic did not slash interest rates on loans following CBN’s dovish twist in Q4 15 which helped shield margins. That said, Stanbic took advantage of the yield downtrend to reprice deposits lower which drove a 50bps QoQ moderation in annualized WACF.
Overall, Stanbic’s FY 15 results were largely weaker as the bank tried to front-load feedthrough from the macro pressures to loan book. Whilst this should help ease concerns over loan quality, NGN depreciation in June and hawkish monetary policy emerged as a fresh layer of worries in 2016 even as continuingresults were largely weaker as the bank tried to front-load feedthrough from the macro pressures to loan book raise prospect of further restatements.
Stanbic currently trades at P/E and P/B of 7.5x and 1.1x which are at premia to peer average at 4.6x and 0.4x respectively. Last trading price of N14.2 is at a significant premium to our FVE (N11.85) which implies a SELL rating. Our estimates are under review.