THIS THING IS A HOLD!!!
Earnings and TP upgrade, maintain HOLD
CfC Stanbic Bank’s FY13A net profit growth of 59% y/y to Ksh4.96bn, which is only 1% below our previous FY14E numbers, prompts us to upgrade our numbers. Compared to our FY13E forecasts, we were in line with most items except two: FX trading income, which was +13% ahead of our forecast while the cost-to-income ratio was 50.2% vs. 53.5% which we expected.
Earnings benefit from a 10 point y/y drop in CIR: Moving from a cost-to-income ratio of c.65% as recently as FY11, CFC’s FY13A CIR of 50% is a marked improvement and informs our FY14E and FY15E forecast changes. While the decline in costs was mainly due to non-recurring project costs, we are not entirely convinced that the current CIR of 50.2% (FY13A) should be the normalised level going forward. We factor in a 53% FY14E (previously 59%) CIR and flag that management’s medium-term target is a 50% CIR, which would imply 5.5% and 7.4% upside to our FY14E EPS and TP respectively.
Improved risk-adjusted profitability: Our analysis reveals that on a yearly basis, CFC has managed to grow its risk-adjusted profitability by c.1.7x in the past three years compared to c.1.5x at DTB and declining multiples for the other banks (Figure 3). At 6.9% PBT/RWA, CFC’s profitability is not the highest, but commands the largest delta over the period. We argue that there is still room for additional growth given the bank’s 72% loan-to-deposit ratio compared to 75%-91% for the other banks, and core capital to RWA of 17.7% provides sufficient buffer for medium-term growth
17% upgrade to FY14E numbers: The main forecast change is a 6 point cut in CIR to 53% for FY14E, informed by the 10 point y/y decline in CIR in FY13A. Secondly, we rebalance our non-funded income contribution to total income from 49% to 51% for FY14E; FY13A FX trading income was +13% ahead of our numbers driven by increased trading volumes from South Sudan with 35% of FX total income booked in Q4:13. To highlight the volatility of trading income, a 10% cut to our FY14E trading income forecast would lead to a 6% decline in EPS and 4% cut to our TP.
New TP Ksh119, maintain HOLD: The share price has run going into the FY13A results and in our view, much of the upside has been priced in. We maintain our HOLD rating but with a new TP of Ksh119 (previously Ksh94). The counter trades on a FY14E P/E 6.8x of and P/B of 1.4x.
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