Stanbic IBTC: Moderate Reactions after Earnings Miscarriage
Stanbic IBTC earnings slumped following a weaker than anticipated revenue performance in the financial year 2021 amidst rising costs and reorganisation efforts. In 12-month, the group profit worsened because trading and other non-interest related revenues fell as the Central Bank of Nigeria raised the bar on regulation.
Failure to meet apex bank 65% loan to deposit ratio and related penalties which resulted in the sterilisation of funds peaked last year and Stanbic IBTC was impacted, though the group enjoys the backing of its parent company with about 68% stake.
Stanbic Africa Holding Limited, its parent company still own 67.51% of the group’s 12.956 billion outstanding shares. In the stock market, investors’ reaction has been moderate. According to the result, Stanbic IBTC actually lost on both ends- core and non-core operations- as earnings per share collapsed.
The group’s thinner earnings per share dipped as a result of a more than 31% decline in the bottom line, caused by a 14% decline in total income as non-interest related revenue fell. Spotting the new market dynamics, the group put energy into the reorganisation of its operation.
Stanbic IBTC trading gain in 2021 fell 75%, the income line that had contributed more than 22% to gross earnings just last year. Also, non-interest revenue which accounted for more than half of gross earnings also went down by more than 23%.
Despite a dim performance, market reaction has been moderate, though its core investors wield larger influence on shares trading – enough to wade off strong share price down.
The stock market valued the group for N450.90 billion on Friday, bigger than at least three Tier-1 banks listed on the Nigerian bourse. However, the bank earnings has been projected to reverberate after its business reorganisation, an effort some analysts said was targeted at improving earnings in 2022.
Following an earnings miss, market reaction has been a bit neutral as Stanbic IBTC tests investors’ commitment amidst effort for repositioning as rivalry in the banking sector peaked.
In 12-month, Stanbic IBTC earnings per share tumbled more than 42%, from N7.29 in the financial year 2020 to N4.20. The bank share trades below its 52-week high of N45.64 but has raced ahead of a 52-week low of N33.90.
After opening the year at N37.96 per share, Stanbic IBTC has shed weight in terms of market valuation, traded on Friday at N34.80 following a moderate rally on the ticker in the last seven trading sessions.
In its regulatory filing, Stanbic IBTC reported that its bottom line was pressured; even with N1.225 billion write-back, its profit fell by about 32% below N83.211 billion declared in 2020 despite the pandemic-induced pressures.
According to the group result, Stanbic IBTC’s total income declined 14.0% to N171.2 billion, primarily due to a 23.2% fall in non-interest revenue to N95.8 billion.
The bank interest income – total sum generated from interest yielding assets- also fell by 1.0% to N104.8 billion as interest yielding assets return declined due to a low interest rate environment engineered by the CBN in August 2019 when it banned non-bank individuals from participating in the open market operation.
In comparison, interest expense declined by 6.9% year on year to N29.4 billion, resulting in a 1.6% increase in net interest income to N75.4 billion, as analysts see the decreased interest expenses offsetting the decline in the interest income.
Stanbic IBTC interest income fell despite a 27.2% jump in interest income from loans and advances to customers to N77.7 billion, partially offset by a 38.7% fall in Interest income from investments to N26.3 billion.
Also, non-interest revenue declined strongly in the industry where activities of nimble financial technology firms have forced banks to rethink revenue models. According to the bank’s figure, the non-interest revenue fell sharply to N95.8 billion, falling by 23.2% below the record achieved in 2020 amidst a pandemic outbreak.
Detail analysis shows that the bank’s non-interest revenue was primarily subdued due to a 74.5% year on year drop in trading revenue to N13.3 billion, FSDH Capital Limited said in an equity note.
Analysts said trading revenue is almost entirely made up of fixed income and currencies that underperformed throughout the year. Further insight shows it was not all gloomy for the bank in the period as net fee and commission revenue performed well, growing 16.4% year on year to N82.9 billion in 2021.
Stanbic reported an income of N176 million from the Insurance operations, FSDH Capital said in its note, adding that the group used to report insurance operations in Other Revenues. In the financial statement, the group reported a write-back in net impairments on financial assets of N1.2 billion versus impairment loss of N10.0 billion in the prior year.
However, operating expenses accelerated amidst steep headline inflation rate in Nigeria; its key market where there are record high upward adjustments in prices of everything and anything including hydrocarbon products.
Its unaudited statement shows that the bank’s operating expenses inched upward by as much as 12.8% to N106.4 billion, as other operating expenses jumped 23.4% to N64.3 billion.
Stanbic IBTC rising costs profile is matched very well with Nigeria’s consumer price index but this doesn’t mean employees’ wages and salaries were adjusted upward with changes in the price level.
As a matter of fact, headline inflation started dropping in the second quarter of 2021. Testing the relationship in the financials, it is observed that staff cost declined minuscule by 0.2% to N42.0 billion; trend analysts attributed to headcount adjustment as parent company Standard Chartered reported closed some branches.
On the outflow side, the bank reported an increase in the effective tax rate to 13.7% from 12.1% in the previous year, according to FSDH Capital analysts’ note.
Due to pressure on the top line and a steep jump in operating expenses, Stanbic IBTC rested the year with a 31.5% year on year decline in net profit to N57.0 billion. Dropped by more than 42%, the group see its earnings per share dwindle to N4.20 in the financial year 2021 from N7.29 in the corresponding year.
In the latter part of 2021, there was an improvement in the bank earnings performance. Stanbic’s total income jumped 11.3% to N49.2 billion in the fourth quarter of 2021. FSDH said the surge was powered by a 19.0% growth in net interest income to N21.4 billion, supported by a 6.0% growth in non-interest revenue.
Stanbic IBTC reported robust performance on a sequential basis as well as reported a 14.0% spurt in gross earnings in Q4-2021 while net profit grew 6.1% above the third quarter, analysts wrote. In the year, Stanbic said in its unaudited statement note to the account that it reorganized its business segments to streamline its operations.
The group changed its operating segments to Business & Commercial, Wholesale, and Consumer & High Net Worth from the third quarter in the financial year 2021. The Business & Commercial segment provides broad base client solutions for a wide spectrum of small and medium-sized businesses as well as large commercial enterprises, according to FSDH Capital.
The Wholesale segment serves large companies, governments, Parastatals, and Institutional clients across Africa and Internationally. The Consumer & High Net Worth segment is responsible for the end-to-end lifecycle of clients.
Looking at the financial performance of these segments, in the Business & Commercial segment, total income grew by 39.0% to N33.0 billion. Meanwhile, its net profit came in at N7.0 billion in 2021 versus a loss of N2.3 billion in the comparable period in 2020.
Analysts said the Wholesale segment was the worst hit, with net income dropping by 43.4% year on year to N63.2 billion and net profit declining 56.1% to N30.0 billion in 2021.
The performance of the Consumer & High Net Worth segment was positive, reporting a 16.3% year on year growth in total income to N78.1 billion and a 16.4% jump in net profit to N20.1 billion. Nonetheless, the group continues to record an all-around growth in gross loans and advances to customers that stood at N946.3 billion at the end of the financial year 2021.
Before the result:
In an equity report, CardinalStone had hinted that Stanbic IBTC would post its lowest return on equity since 2012, given analysts’ 13.4% forecast for 2021. Analysts stated that the drop in return on equity reflects the expected full-year earnings decline which did happen.
According to CardinalStone analysts, the weaker earnings expectation reflects the projected 170 basis points drop in asset yields—which could offset an 18.0% increase in interest-earning assets—and the slump in trading income which management attributed to limited FX flows.
These include a slowdown in fixed income and money market transactions and lower derivative book – Stanbic IBTC swaps fell to about $220 million from $600 million, according to CardinalStone.
“Our earnings 2022 expectation revolves around a potential recovery in net trading gains and broad improvement in sector asset yields”, CardinalStone stated. For context, analysts said trading gains typically accounts for about 25.0% of Stanbic’s overall operating income but fell to 7.0% as shown in its nine-month result in the financial year 2021.
Elsewhere, analysts said management hinted at upside opportunities in its recently launched N100 billion infrastructure fund, momentum in the newly onboarded life insurance business and accelerating retail banking segment. It also hopes for a gradual tilt away from overdependence on the volatile trading revenue, according to CardinalStone analysts’ equity report.
To this point, the firm has recently announced plans to establish a Fintech subsidiary which some analysts said is positive for re-rating and market performance. For 2022 CardinalStone analysts are expecting earnings to pick up with a profit after tax projection of N70.7 billion, representing a 19.7% uptick. Analysts still keep the stock on hold rating, asking investors to remain neutral.
Detail from the unaudited statement shows that the Group litigation portfolio as of 31 December 2021 consisted of 373 cases and the aggregate value of monetary claims against the Stanbic IBTC Group was N118,012,784,378.45; USD$4,438,678.78 & GB £74,284.64.
Included in the total number of litigation above is the case involving Stanbic IBTC Bank PLC as Appellant where the Court of Appeal, Lagos Division delivered Judgment on Monday 20 September 2021 and reduced the damages awarded by the High Court from N50 billion to N5 billion.
“The Bank being dissatisfied with the Judgment of the Court of Appeal filed a Notice of Appeal and Motion for stay of execution of the Judgment. The Bank’s Motion for stay of execution was granted by the Court of Appeal on 24 November 2021.
“The Bank has compiled and transmitted the records of appeal to the Supreme Court and the Bank’s appeal is duly entered as SC/CV/1075/2021. The same Judgment holds in the CRC Credit Bureau appeal”, the group said in the regulatory filing. #Stanbic IBTC: Moderate Reactions after Earnings Miscarriage
