Keeping the powder dry - BUY New TP Ksh51.00 (Q1:13 results update - sbg securities)
Sitting strong:
with net earnings up 25% y/y and 7%q/q, KCB’s 1Q13A results were better than that of peer Equity Bank, helped by lower cost and somewhat stronger non-interest income up 12% y/y on stronger FX trading gains. With virtually no loan growth on the previous quarter, we believe at first read that these results were perhaps one of the strongest indications yet of the bank’s earnings resilience.
A steady hand in a difficult context:
we have highlighted the difficult operating environment for banks in 1Q13, and we take this opportunity to reiterate our belief that asset allocation and the more positive overall macroeconomic environment going forward are likely to weigh more on stock performance than perhaps the numbers. That said, we believe that KCB’s numbers underscore the bank’s ability to deliver a steady performance in a difficult environment.
Reiterate BUY — new TP Ksh51.00:
our forecast trim is more than compensated by changes in macro related valuation assumptions as we cut our risk-free rate by 50bps to 9.25%, which leaves us with a new target price of Ksh51.00 (Ksh41.00 previously). At FY13E P/E of c.9.5x and P/B of c2.1x, we could accept some room for debate on KCB’s multiples, which we believe our conservative estimates should help set aside. We continue to see value in the stock at these levels and reiterate our BUY recommendation.
Other Ratings update
Equity Bank, HOLD, TP KSh33.18
Nic Bank, BUY, TP KSh61.90