Stock Rating: HOLD
Price Target: N63.97
Price (25 October 2024): N61.00
Potential Upside (Downside): +4.9%
Ticker: STANBIC NL
…On recapitalisation, the group received approval to raise N550 billion through a combination of a N150 billion rights issue and a N400 billion debt issuance program at its Annual General Meeting in May
MON OCT 28 2024-theGBJournal| Coronation Research analysts on Monday raised Stanbic IBTC Holdings (STANBIC) Price Target from N63.97 from N61.00 and made
a ”Hold” call on shares rating.
With another strong earnings performance combined with group’s proactive approach to managing credit risks, Stanbic sets itself apart this quarter as one of the few corporates to see estimates revised higher.
The Banking giant released its 9M 2024 results after close of business last Friday (25th October 2024) with the results showing a 72.2% y/y growth in Pre-tax profits and 68.5% y/y growth Net profits.
STANBIC’s pre-provision operating profit rose 4.8% quarter-on-quarter but Net profits declined by 5.9% q/q due to margin pressure.
On balance, earnings were supported by growth in Interest Income (+130.7% y/y), which is primarily attributable to improved market yields during the period. This supported income from Investment securities and loans & advances to customers.
The stock gained 8.6% (+9.0% w/w) during Friday’s trading session but has lost 12.4% y-t-d. We expect the results to drive some activity in the stock today, with the potential for marginal gains.
Financial Performance
9M 2024 Net interest income rose by 109.0% y/y to N251.9bn, primarily driven by a 130.7% y/y surge in Interest income, reaching N425.8bn, as the group capitalised on favourable market rates during the period.
This delivered 81.7% y/y growth in Income from Loans and advances to customers which expanded by 16.2% over 9M 2024. There was also 408.7% y/y growth Income from investment securities which expanded by 183.8% over 9M 2024.
As a result, the Net Interest Margin (NIM) increased by 334bps to 10.5% y/y, reflecting effective lending practices despite a significant rise in interest expenses by 171.4% y/y.
Non-interest income also grew, with fees and commissions up by 56.7% to N124.6bn, driven by increased asset management fees and foreign currency service fees, and brokerage and financial advisory fees. Trading revenues posted a 34.3% y/y increase, reflecting improved market dynamics.
Operating expenses rose by 49.2% y/y to N183.6bn, largely due to investment in information technology and increases in personnel costs (+38.5% y/y). Despite this, the Cost-to-Income ratio improved to 39.3%, from 46.7% in 9M 2023, as the pace of growth in total income surpassed growth in expenses.
This resulted in a Pre-provision operating profit increase of 102.5% y/y, reaching N282.3bn. Overall, the performance led to 72.2% y/y growth in Pre-tax profits to N222.9bn, despite a significant rise in loan impairment provisions of 496.4% y/y, reflecting a more cautious approach to credit risk.
Asset Quality
Asset quality faced pressure, as seen in the increase in the Cost of Risk to 3.5%, up from 0.9% in 9M 2023, reflected in loan impairment provisions of N59.4bn.
The Non-performing Loan ratio also rose to 4.6%, up by 180bps, reflecting a modest deterioration in credit quality as the bank expanded its loan portfolio by 18.4% over 9M 2024.
However, this increase in provisions indicates the group’s proactive approach to managing credit risks, in our view, which may strengthen its resilience in the face of market volatility.
Overall, the performance reflects strong growth in core revenue streams. Although asset quality shows some signs of stress, as evidenced by the rise in the NPL ratio and Cost of Risk.
”We attribute this to the group having a proactive approach to provisioning for losses, given the current macroeconomic headwinds and this reflects the group’s commitment to safeguarding financial stability. We expect elevated market yields to support income from core banking activities for the rest of year,” says Blessing Ishola, Coronation Research analyst.
On recapitalisation, the group received approval to raise N550 billion through a combination of a N150 billion rights issue and a N400 billion debt issuance program at its Annual General Meeting in May, however, modalities are yet to be officially communicated.
X-@theGBJournal|Facebook-the Government and Business Journal|email:gbj@govbusinessjournal.com|govandbusinessj@gmail.com
