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Stanbic IBTC Holdings Plc H1 2020 Earnings Reports Reinforce A HOLD Recommendation
#1
Stanbic IBTC Holdings Plc H1 2020 Earnings Reports Reinforce A HOLD Recommendation

Highlights
Stanbic IBTC Holdings Plc posted an impressive H1 2020 result underpinned by double-digit growth in the bottom line. The group's earnings grew by 8% YoY driven by 27% growth in non-interest revenue. Operating profit rose by 7% YoY dragged by a significant YoY increase in credit impairment charges. However, the cost curtailment strategy by the group yielded result as profit before tax (PBT) advanced by 17% YoY. Profit after tax grew markedly by 25% informed by the lower effective tax due to change in tax basis for the banking subsidiary. Overall, EPS for the period stood at N3.96k from N3.42k in H1 2019.

Recommendation
We note the impressive growth in the group’s total asset by 61% from N1.88tn in FY 2019 to N3.02tn in H1 2020. However, while the group’s assets based grew significantly, core earnings during the period declined save for the gains from trading income. While the decline in core earnings was not unexpected, given the COVID-19 disruptions amid challenging macroeconomic backdrop, we expect the group to leverage growth in its assets base to boost profits in the coming quarters. However, regulatory headwinds remain a concern for us. We note that the group has c.N851.09bn (c.28% of the group’s total assets) as balances with the CBN, which is not available for use and will continue to drag profitability. Also, the group’s effective CRR stood at 153% as of H1 2020. Notwithstanding the regulatory headwinds, we expect the recent reduction in interest on savings accounts to boost net interest margin going forward.

Overall, we have a revised EPS forecast of N7.33k for FY 2020 and a fair value estimate of N35.97k on the stock. At the current market price of N38.50k, the stock is trading at a forward PE of 5.3x (our justified PE 4.9x). Thus, we recommend a HOLD
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