The bank recently released a notice on the Nigerian Stock Exchange (NSE) that a case instituted by the FRC at the Court of Appeal is ongoing. Owing to this and continued discussions with Stanbic’s auditors on the treatment of certain items, the results release date has been delayed for two months until 31 May. We update our valuation to reflect the de-rating in our global P/E comps and raise our CoR estimates to further reflect our concerns about the macro environment. On the back of this, we reduce our TP by 19% to NGN17.0 and downgrade the stock to HOLD, from Buy.
Ongoing challenges from the FRC
Given the lack of news over the past few months, it was easy to assume the dispute between Stanbic and FRC was being quietly resolved, but that is clearly not the case. According to Stanbic’s filing on the NSE, the FRC recently sought an order of injunction at the Court of Appeal that relates to certain aspects of the bank’s FY15 financial statements. The presentation of certain items in the results based on the FRC’s queries in 2015 is also an ongoing topic for discussion with the bank’s auditors. On the back of these issues, Stanbic has announced a delay in the release of its FY15 results until 31 May 2016 at the latest. The key issue relates to the remittance of franchise fee accruals that the National Office for Technology Acquisition and Promotion (NOTAP) has refused to approve since 2012/2013. Management estimates the amount at c. NGN5bn, noting that accruals have stopped since September 2015. We would rather not hazard a guess on how the technical issues might be resolved, as this has already taken much longer than we expected.
Changes to forecasts and valuation
We still like the earnings defence that Stanbic’s wealth business provides to the group, but note that global 2016E P/E comps have de-rated to 14x, from the 16x we previously used. On the back of this and the unconventional economic path Nigeria is currently treading with its exchange rate policy, we increase the liquidity discount by 5 ppts to 20%, implying a 2015E P/E of 11x, down from 14x previously. Furthermore, given the number of profit warnings coming through from the tier 2 banks, we raise our FY15 and FY16 CoR estimates for Stanbic to 5.0% and 4.5%, from 4.2% and 4.0%, respectively. Therefore, our FY15-16E PBT estimates have been reduced by 15% and 9%, respectively, translating to RoEs of 12% and 14%.
Downgrade to HOLD; TP cut 19% to NGN17.0
Stanbic has been going through a rough patch and we are concerned by the news that the FRC dispute remains unresolved. The financials may be re-stated, but we would need to gauge the magnitude of any structural changes and the potential impact on the group’s earnings trajectory. The planned capital raise remains on the agenda, at least based on our latest discussions with management. While we still like the earnings buffer the wealth business provides to the group, we have moderated our group valuation largely owing to: 1) the P/E de-rating of our global comps for the wealth business; 2) a higher liquidity discount assumption; and 3) higher CoR assumptions in the banking business. We therefore cut our TP by 19% to NGN17.0 and downgrade the stock to HOLD, from Buy
