Event

Similar to the Group’s Q1 2022 performance, the Group’s gross earnings grew by 43% YoY to N67.64bn in Q2 2022 with the bulk of the increase coming from interest income (+52% YoY to N35.25bn). Non-interest income also recorded strong growth (+34% YoY to N32.38bn).

Operating income grew by 28% YoY to N52.64bn in Q2 2022, while operating expenses grew by 14% YoY to N32.26bn. Effectively, the Group’s cost-to-income ratio improved by 800 basis points to 61% in Q2 2022 (Q2 2021: 69%). As a result, profit before tax spiked by 62% YoY to N20.38bn. Although the effective tax rate was higher in Q2 2922, profit after tax grew by 38% YoY to N15.60bn.

The Group declared an interim dividend of N1.50 (H1 2022 interim dividend: N1.00). The qualification date was on September 6, 2022, while the payment date is on September 21, 2022.

Positives

Strong interest income growth: In efforts to drive earnings, the Group’s loan book grew by 40% on a year-on-year basis to N1.06trn as of H1 2022. The expanded loan book resulted in higher interest income growth. Based on our analysis, in view of the rising interest rate environment, higher asset yields also supported interest income.

Trading Gains Recover: In 2021, the Group reported significantly lower-than-average trading gains, Given the large contribution of those gains to the Group’s bottomline, earnings were at depressed levels. Thus far in 2022, the Group treasury activities delivered an improved performance as trading gains grew by 198% YoY to N16.32bn in H1 2022.

Negatives

Credit Impairment: The impact of loan book growth was reflected in the Group’s impairment losses. The Group recorded a credit impairment charge of N4.88bn in Q2 2022 relative to N1.12bn in Q2 2021.

Inflationary Pressures on Opex Growth: The Group recorded higher operating expenses, resulting from higher staff costs and regulatory charges. Also, higher energy and maintenance costs accounted for the opex increase.

Higher Taxes: Effective tax rate increased to 23% in Q2 2022 from 10% in Q2 2021. This was due to new tax laws that limited the tax-exempt status of some government securities.

Outlook

The Group’s financial performance in H1 2022 was in line with our estimates. We do not see any material deviation from our earnings expectations in H2 2022. Therefore, we leave our forecasts unchanged. We estimate an earnings per share (EPS) of N5.95, and a fair value estimate of N33.84 for the stock. The implied justified P/E of the stock is 5.69x (about an 8% discount to the stock’s historical P/E of 6.21x). The lower justified P/E, relative to the historical trend, reflects lower growth prospects for the stock due to competition, underlying macroeconomic weaknesses, and regulatory risks.

At the current share price, we believe that the stock is undervalued relative to estimated growth projections and underlying fundamentals. Also, we note that the stock currently trades at 7% above its 52-week low price. We recommend a BUY for the stock.

Please follow the link “Stanbic IBTC Plc Q2 2022 – Rebound in Trading Gains Lift Bottomline”  to view the whole report.

Thank you.