Stanbic IBTC's bottomline declines on lower non-interest income, write-backs -

Stanbic IBTC’s Q1 2019 results showed a mild growth of 2% y/y in Gross Earnings to N58.7bn (annualised; N234.7bn), coming in below our 2019 estimate of N239.3bn on an annualised basis. Pre-tax Profit however declined 12% y/y to N23.5bn (annualised; N94.0bn), albeit it is broadly in line with our 2019 estimate of N94.7bn on an annualised basis. However, on a q/q basis, Gross Earnings grew stronger, up by 10% q/q to N58.7bn while Pre-tax Profit rose by 32% q/q to N23.5bn.

InterestIncome: This grew 5% y/y and 2% q/q to N31.4bn in Q1 2019, on the back of growth in average volume of treasury bills investment during the period. Interest Expense on the other hand rose by 3% y/y and 2% q/q to N10.9bn in Q1 2019, driven largely by the senior unsecured bond of N30bn raised in December 2018. Overall, Net Interest Income grew 7% y/y and 2% q/q to N20.2bn (N80.7bn annualised), coming in below our 2019 estimate of N83.4bn on an annualised basis.

Non-Interest Income: Declined marginally 3% y/y to N27.0bn on the back of the moderation in Fee and Commission Income (down 4% y/y to N17.3bn). The decline in Fee and Commission Income was due to lower income from Asset management (down 4% y/y), Brokerage and financial advisory (down 16% y/y) and Custody transactions (down 15% y/y).

Operating Incomr: Supported by the growth in Trading Revenue, up 2% y/y to N9.8bn (on the back of income from treasury bills hedgeof the CBN FX Swap which increased from $300m in 2018 to $500m in 2019), Operating Income grew flattish by 1% y/y to N47.2bn.

CAR remains strong: The bank’s Capital adequacy ratio (CAR) of 21.6% (FY 2018: 21.0%) remains strong and well above the regulatory requirement of 10%.

Impairment Charge: The firm reported positive Impairment Charge of N1.4bn in Q1 2019 compared to N5.1bn in Q1 2018 owing to write-back on previous write offs.

Cost of Income Ratio: The firm kept a rein on Operating expenses as Cost to Income Ratio (CIR ex provisions) improved slightly to 53.1% in Q1 2019 from 53.7% in Q1 2018, on the back of the muted growth in OPEX (+3bps to N25.1bn).

Profit: Pre-tax Profit however declined 12% y/y to N23.5bn in Q1 2019 while Profit after tax fell by 17% y/y to N19.1bn, owing to higher effective tax rate of 18.5% compared to 13.6% in Q1 2018. EPS also declined 17% y/y to N1.81 in Q1 2019 from N2.23 in Q1 2018. Annualised RoAE came in at 30.0% in Q1 2019 compared to 43.0% in Q1 2018.

Recommendation: We have a BUY recommendation on Stanbic with a target price of N65.0/s. Current price: N45.1.