Cfc Stanbic Holdings Ltd ( HOLD, KSh 119.00 )
■ Net income up 59% y/y : CfC Stanbic Bank net income growth of 59% y/y to Ksh1.6bn is the strongest performance to date this Q1:14 reporting season. On a quarterly basis, net income declined by 5% likely due to higher operating expenses which grew by 60% compared to Q4:13.
■ Net interest margin improvement of 10bps y/y: NII is 39% of total income vs. industry average of c.60% (our calculations). The bank achieved a 10bps y/y increase in net interest margins where some of its peers actually experienced a decline in margins over the same period. This was mainly driven by growth in interest income from loans supported by 12.5% y/y loan growth, and income from government securities (+87% y/y Ksh655m).
■ NOI contribution moves from 52% to 61% of total income in Q1:14: Non-interest income grew by 43% y/y and 40% q/q to Ksh3bn in Q1:14. The strong yearly performance was driven by fees and commissions income growth +46%y/y and FX trading income growth of 34% over the same period. But on a q/q basis, Q1:14 vs. Q4:13, FX trading income and fees and commissions income actually declined by 10% and 5% respectively.
■ CIR of 52% in line with bank medium term target: In our note on CfC Stanbic Bank, (Earnings and TP upgrade, maintain HOLD, 10 March 2014) we flagged that FY13A earnings benefited from a 10 point y/y drop in the banks cost to income ratio. The details show that Q1:14 CIR of 52% has deteriorated by 13 points when compared to Q4:13 CIR of 39% where lower operating costs were due to non-recurring projects costs. The banks Q1:14 CIR of 52% is actually in line with FY13A 50% and 6 percentage points below Q1:13 CIR of 58%.
■ NPL ratio improves: The banks NPL at Ksh1.6bn grew by 37% y/y but actually declined by 8% on a quarterly basis. NPL ratio improved by 40bps to 2.2% in Q1:14 vs. Q4:13 on our calculations. Q1:14 impairment charge of Ksh203m in line with average of the past few quarters.
■ Capital remains healthy: The banks core capital to RWA of 17.1% implies a capital buffer of over 6% above the new regulatory minimum of 10.5%. Deposits declined by 6% q/q while loans and advances grew by 9% leading to a jump in the banks’ loan/deposits ratio to 84% compared to 72% in Q4:13.
■ Valuation: We have a HOLD recommendation of CfC Stanbic Bank with a TP of Ksh119. On our numbers the bank trades on a FY14E P/E of 9x and P/B of 2x. We see scope for near term profit taking. Please refer to our last published note on CfC Stanbic Bank for detailed company disclosure.
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