Stanbic IBTC: Stronger Prudential Ratios Attract Analysts Buy Rating

Stanbic IBTC: Stronger Prudential Ratios Attract Analysts Buy Rating

Ahead of its second quarter of financial year 2020 earnings release, analysts have rated Stanbic IBTC Holdings Plc a Buy on account of stronger prudential ratio.

Though, the lender’s earnings is expected to be impacted due to rampaging coronavirus and weaker than usual economic fundamentals.Stanbic IBTC: Stronger Prudential Ratios Attract Analysts Buy Rating

Stanbic IBTC is considered to be at a very comfortable level in prudential ratios, and equity analysts at Cardinalstone have taken this into their stock recommendation.

Based on its first quarter 2020 unaudited financials, the lender’s capital adequacy ratio settled at 17.5% as against 10% regulatory benchmark.

Also, the Holdco recorded 144.2% liquidity ratio, which was very well above 30% required by the Central Bank of Nigeria.

Though analysts cut back price target to ₦39.61 per share as against ₦47.14 previously estimated, Cardinalstone said this represents 36.6% potential upside to its reference price of ₦29.

“We forecast overall earnings to come in weaker by 5.5% in financial year 2020, dragged by higher expected credit losses (ECLs) amidst slowdowns in net interest income.

Positively, however, Cardinalstone said it like that STANBIC’s regulatory ratios are well in line with regulatory guidance.

Analysts estimated that lender’s net interest income (NII) could moderate on lower asset yields.

Read Also: Stanbic IBTC CEO says bank remains strong, stable

Cardinalstone explained that it is likely that lower funding costs could cushion the fall in NIMs, reflecting the bank’s recent initiatives towards replacing its more expensive deposits with cheaper alternatives.

As this has  improved to 86.7% of total deposits as against 65.9% and 76.2% in 2018 and 2019 respectively.

Based on recent development, analysts forecast a 5.4% modest growth in non-interest revenue, helped by higher asset management fees (57.0% of fee income) which could offset a potential weakness in other fee incomes.

Also supporting non-interest revenue (NIR) is analysts’ forecasted 18.0% growth in trading revenue for the year.

Cost to income ratio – estimated to come at 52% in 2020 compare to 50.4% in financial year 2019 – could be pressured by higher regulatory costs amidst weaker revenues.

The Asset Management Corporation (AMCON) charges leapt 40.7% in the first quarter of 2020 related to the near 30% growth in total assets.

Elsewhere, analysts stated that impairment charge is expected to soar more than six-fold due to lower loan recoveries and higher ECL provisions.

Accordingly, analysts at Cardinalstone estimate a 70 basis points (bps) increase in cost of risk to 1.0% for Stanbic IBTC Holdings Plc.

“We cut our 12-month target price to ₦39.61 from ₦47.14, which suggests an exit price to book (PB) of 1.20x, a 35.1% discount to the bank’s 4- year average of 1.85x.

“Our target price represents a potential upside of 36.6% to our reference price of ₦29.00. Hence, we rate the counter a BUY”, Cardinalstone stated.

Stanbic IBTC: Stronger Prudential Ratios Attract Analysts Buy Rating

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