Stanbic recently released its FY 2019 UNAUDITED results wherein Gross Earnings grew 5% y/y growth to N233.8 billion, slightly below our 2019 estimate of N234.2 billion. Profit before tax also increased 3% y/y to N90.9 billion, in line with our FY 2019 estimate of N90.4 billion. On a q/q basis however, gross earnings declined marginally, down 2% q/q to N57.7 billion while Profit before tax fell 11% q/q to N21.8 billion.
Interest Income grew marginally, up 2% y/y to N120.4 billion in FY 2019 but declined 3% q/q to N29.4 billion. The growth in Interest Income was driven by growth in the loan book (Net loans to customers grew 23% y/y in 2019). We highlight that the growth in the bank’s loan book is the highest since 2014; 40.6%.
Accordingly, we believe the strong growth was on the back of CBN’s guideline which mandated banks to maintain an LDR of 65% by December 2019. As of 9M 2019, the bank’s Loan to funding ratio stood at 62.9%.
Interest Expense, however, rose 6% y/y to N42.3 billion in FY2019 but declined 6% q/q to N10.9 billion. The rise in Interest expense compared to the growth in Interest Income ensured Net Interest Income remain flat, both on a y/y basis and q/q basis.
Non-Interest Income grew 6% y/y to N108.8 billion but declined marginally by 1% q/q to N26.8 billion. The y/y growth was driven largely by the increase in Trading Income (up 16% y/y) amidst the flattish growth in Net Fee and Commission Income (up 1% y/y). However, the quarterly decline was due to weaker Net Fee and Commission Income (down 2% q/q) as well as lower Trading Income (down 5% q/q) – we attribute this to lower yields on risk free instruments during the quarter.
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Unlike in 2018 when the bank recorded writebacks of N2.9 billion, the bank had Impairment Charge of N1.6bn, brining cost of risk to a minimal 0.3% for FY 2019.
Operating income grew modestly, up 3% y/y to N186.6 billion but was slightly pressured in Q4 (down 1% y/y)- Again, we suspect this was due to the lower yield environment.
Cost efficiencies, however, remained firm as Operating Expenses declined 2% y/y but grew at a sub-inflationary rate of 4% in Q4 compared with Q3. The decline in OPEX coupled with a single-digit growth in Operating Income (+3% y/y) led to a 248bps improvement in Cost to Income Ratio (CIR ex provisions) to 50.4%.
Pre-tax Profit grew 3% y/y to N90.9bn, largely on account of stronger Trading Income and moderation in OPEX. On a quarterly basis, however, Pre-tax Profit fell 11% q/q to N21.8bn. Profit after tax grew marginally 1% y/y to N75.0bn, owing to higher effective tax rate of 17.5% compared to 15.6% in FY 2018. RoAE stood at 27.3% in FY 2019 compared to 34.5% in FY 2018.
We have a target price of N55.01/s for Stanbic (current price: N41.5) with a BUY recommendation.
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