Early analyst reaction to Stanbic IBTC first quarter results

Stanbic IBTC’s first quarter  2017 results for the period ended, which were released recently, were very strong. Profit before tax  came in at N18.6bn and grew by 78 percent while profit after tax of N16.4bn was up by 185 percent. Both income lines contributed to the strong results.

 Net interest income increased by 79 percent while non-interest income grew by 19 percent to leave profit before provisions up 42 percent at N39bn. Looking at the  year on year changes, it would appear that trading income was the main driver behind the robust non-interest income performance. It grew from N2.6bn to N6.7bn.

It is not clear at this stage which asset class was the main driver behind this performance. Net fees and commission revenue was down slightly. The profit before provisions result was strong enough to offset marked year on year increases of 47 percent and 16 percent in both loan loss provisions and operating expenses respectively, hence the 78 percent  growth in PBT.

 Sequentially, it is the non-interest income performance that stood out: a quarterly growth of 31 percent  (funding income was flat). Compared with our estimates, Stanbic’s results were well ahead. Profit before tax beat our forcast by 67 percent while PAT was more than double our forecast, thanks to a combination of positive surprises on taxes, other comprehensive income and minorities. Returning to the top of the financial results, both revenue lines were better than we had forecast – net interest income by 26 percent, non-interest income by 13 percent. As such, profit before provisions came in 19 percent ahead of our expectations. With loans and advances down from December levels, we suspect the strong performance in funding income was likely driven by margins and/or the fixed income portfolio in general. Although loan loss provisions negatively surprised by 11 percent, it was overshadowed by a positive surprise in operating expenses.

The results leave Stanbic with an annualised ROAE of over 40 percent compared with guidance of 18-20% for the full year.

While we expect interim dividends to reduce the ROAE as we move through the year, the Q1 results are so strong that the bank is on course to beat the guidance it has given.

As such, we expect consensus  full year 2017 profit before tax estimate of N47bn to move up, subject to reassurance from management that the doubling in non-performing loans between December and March to N38bn will not jeopardise the outlook for the balance of the year.

 Our estimates are under review. We rate Stanbic shares Neutral.
 
Source FBNQuest