Stanbic IBTC Holdings Sees Pre-Tax Jump, net Profits Rise in H1-22
Stanbic IBTC Holdings (STANBIC) released its H1 22 audited results after the market closed on (23 August). The group reported Pre-tax profits growth of 61.8% y/y and Net profits growth of 37.8% y/y. For Q2 22 standalone, Pre-tax profits rose by 60.0% y/y, and Net profits were up 37.8% y/y. On the H1 22 Earnings per Share (EPS) of N2.26, the board has proposed a record-high interim dividend of N1.50/s (+50.0% y/y). This implies an interim dividend yield of 4.9% on today’s closing price.
On balance, earnings were buoyed by the rise in both Net interest income and Non-interest revenues. However, when annualised, Net profits were behind our and consensus forecasts for FY 22 by 14.1% and 15.5%, respectively, owing to a negative surprise on the Tax expense line.
The market’s reaction to the results was positive, as stock rose 8.9% today, buoyed by the increased dividend and the double-digit earnings growth. Year-to-date, the stock is down 15.3%.
Solid loan growth buoys NII
Interest income grew by 54.3% y/y in H1 22 and was primarily supported by a 51.0% y/y (Q2 22: +48.2% y/y) growth in Interest earned on loans to customers. The rise came as the group recorded 15.5% growth in gross loans and an increase in the average yield on customer loans by 53bps y/y. The improvement in loan yields is even more evident when comparing the rise in Q2 22 standalone — we estimate loan yields rose by 244bps y/y and 64bps q/q during the quarter.
Interest expense rose by 57.7% y/y in H1 22, driven by a 193.3% y/y increase in Interest paid on Customer deposits. Although the Current and Savings Account (CASA) mix improved to 68.6%, a four-quarter high, we suspect this only happened towards the end of the quarter. Likely, much of the expenses on expensive deposits, which have been elevated over the last five quarters, were incurred before the quarter’s end. Consequently, the group’s cost of funds increased by 39bps y/y to 1.9%. Nonetheless, Net Interest income grew by 53.1% y/y, with the Net Interest Margin (NIM) expanding by 105bps y/y to 5.5%, on our calculations.
Trading revenues recover to drive NIR
Non-interest revenues grew by 37.1% y/y in H1 22 as trading revenues (+198.2% y/y) surged. In addition, Fees and Commission income grew by 10.4% y/y, supported by growth in digital transaction volumes, investment banking fees, and fees due to increased Assets Under Management (AUM).
Elsewhere, Operating expenses (Opex) grew 22.6% y/y, mainly on personnel costs, regulatory costs (the AMCON levy) and Information Technology costs. However, following larger growth in Net revenues (+43.8% y/y) than costs, operating efficiency improved, with the Cost-to-Income ratio dropping 1,038bps to 59.9% (H1 21: 70.3%). Consequently, pre-provision operating profits rose by 94.0% y/y. Further down the P&L, the group recorded Loan loss provisions of N5.47bn (vs an impairment write-back of N1.29bn in H1 21), leading to Pre-tax profits growth of 61.8% y/y in H1 22.
Asset quality remains strong overall despite slight deterioration
The Group’s NPL ratio increased to 2.3%, from 2.1% in FY 21, and 2.2% in Q1 22 but is still well below the statutory limit of 5.0%. In addition, the Group’s Cost of Risk rose to 1.1% (H1 21: -0.4%) following increased provisioning amidst significant expansion in the loan book. Elsewhere, the group’s total capital adequacy ratio closed at 19.7% (Bank: 15.0%), significantly higher than the minimum regulatory requirement of 11.0%.
Conclusion
Experts at Coronation Research say “We are encouraged by the recovery from the highly disappointing performance in H1 21, especially the RoE uplift. We expect improved market yields will positively impact NII and NIM over the rest of the year. In addition, we hope the group can sustain the recovery in Trading revenues which have historically been a solid contributor to Net revenue.
The stock has declined by 15.3% y-t-d, making its valuation more compelling and dividend yield more attractive than at the beginning of the year.
