By SEGUN ADAMS
Sterling Bank, one of the commercial banks in Nigeria, has reported a modest improvement in its earnings for the first quarter of 2019. The Bank’s Profit After Tax was up 4.5 percent to N3.2 billion, driven by net interest income growth of 20.5 percent in the period.
Abubakar Suleiman, chief executive of Sterling Bank, in a note to investors commented that the results showed the bank’s effective funding optimisation and drive for efficiency in the face of headwinds in the economy.
In the quarter, net interest income increased to N14.93 billion compared to N12.39 billion posted in the corresponding period of 2018 and was supported by an 18.3 percent decline in interest expense, resulting in a net interest margin of 7.4 percent vs. 6.2 percent in the preceding year.
“Our performance in the first quarter reflects the resilience of our business model,’’ Suleiman said. ‘’Despite the slow growth environment owing to election activities, we delivered a strong base for growth in 2019.”
Analysis of the bank’s financials shows a 1.39 percent uptick in other income to N20.63 billion in the review period.
A 29.44 percent surge in fees and commission income to N4.7 billion in the period to March 31, 2019, as against N3.63 billion in the same quarter of 2018, was offset by a significant decline in both net trading income and other operating income which pressured downwards Sterling’s operating income.
Sterling was, however, able to reduce its impairments by 32.78 percent and maintain its performance in the three-month period as net operating income after impairments grew 3.63 percent to N19.79 billion.
“(We) maintained a cautious stance to lending, even as we prioritise reallocation of our loan book to the HEART sectors,” the bank said, highlighting the 4.5 percent growth in its balance sheet as increased retained earnings in Q1 2019 shored up shareholders fund by 10.45 percent.
Sterling HEART refers to the bank’s lending tailored for Health, Education, Agriculture, Renewable Energy and Transportation sectors.
Total expense for Sterling was 3.7 percent more than the N15.92 billion incurred in the first quarter of 2018, but the bank was able to deliver a 3.09 percent increase in its profit before tax which was N3.27 billion for Q1 2019.
Similarly, profit after tax improved by 4.52 percent as tax expense was 56 percent lower in the recent quarter at N33 million compared to N75 million incurred in the same period last year.
Earnings per share remained unchanged at 11 kobo from Q1 2018.
For the review period, Sterling’s institutional banking segment was its most profitable, contributing about N2.66 billion or N57 percent to N4.66 billion gain across all its profitable segments before adjustment to a loss in corporate and investment banking arm which pared total profit to N3.27 billion.
Retail banking segment, the second most profitable in Q1 2019, grew at 79 percent year on year from Q1 2018 to contribute N1.35 billion earnings to Sterling, while commercial banking turned the corner in Q1 2019 to post N296 million profit as against significant loss in Q1 2018.
At the close of trading on Wednesday, Sterling remained flat at N2.70 per share, 1.5 percent shy of its 52-week high of N2.74 established on April 16, 2019. Sterling is up 42 percent, outperforming the All Share Index (-4.87 percent) and Banking Index (-2.72 percent) on Year-to-Date as at Wednesday.
Sterling Bank at the start of the new year unveiled its new ‘’rising sun’’ identity which it says symbolises a transitioning from the old school banking to a new and agile force that delivers forward-moving disruptive financial solutions. The full-service commercial bank grew its profit by 15 percent in 2018 full-year.
By FBNQuest Research,
Slight cut to 2019-21E EPS forecasts
Following UACN’s earnings conference call, we have made slight downward adjustments to our 2019-21E forecasts, despite the new management’s assurance that things are turning around for the better. Although large impairments taken on real estate investments in 2018 – which drove the pre-tax loss of -N5.5bn – are expected to be non-recurring over the forecast period, we see the biggest challenge coming from the animal nutrition and other edible businesses (Grand Cereal and Livestock Feeds; c.54% of group sales). Indeed, group sales which declined by -12% y/y were weighed down by weaker sales in Grand Cereal (-28% y/y) and Livestock Feeds (-23% y/y).
Looking ahead, these businesses are unlikely to show a healthy pick-up in the near term, given sustained competition from global food company Olam International. Our forecasts already reflect a tough competitive environment, though we have made a slight cut of -60bps on average to our 2019-21E EPS estimates.
However, on the back of lower sum-of-the-parts valuation assumptions, our new price target of N10.2 is around -19% lower than previous. Year-to-date, UACN’s shares have shed -28.7%, underperforming the broad index by 24.3%. Although our new price target implies a potential upside of 45% from current levels, we retain our Neutral rating on the shares, considering the overall bearish picture in the near-to-medium term.
-N6bn in pretax loss made in Q4
Q4 sales for the group plummeted -48% y/y to N23.0bn, while pre-tax and after-tax losses of –N6.0bn and –N9.8bn were incurred for the quarter. A gross margin contraction of -39bps y/y to 16.9% and other operating net losses of –N8.9bn (Q4 2017: -N955.9m) also contributed to the squeeze in profitability during the quarter. These negatives completely offset the gain from lower net finance costs of N347m (down -86% y/y).
Sequentially, sales increased by 22% q/q whereas Q4 pre-tax loss compares with -N1.6bn for Q3. Compared with our forecasts, sales beat by 10%, but PBT and PAT were significantly lower than our forecasts of N260m and N176m respectively.
By ARM Research,
Solid outing to the year
After a very weak Q4 performance which dragged overall full year earnings, UBA Plc posted strong recovery in Q1 2019, showing improvement across income lines. Particularly, the bank recorded material growth in non-interest revenue (+72% QoQ), following sturdy growth in net fee income (+16.4% QoQ), three-fold gain in the other income line and trading gain of N6.1 billion compared to a loss in the prior quarter. The strong gain in NIR coupled with net interest income growth of 5.7% QoQ, moderation in cost to income ratio (-700bps QoQ to 62.1%) and lower effective tax rate of 4.9% (Q4 18: 38.9%) necessitated expansion in EPS by 69% YoY. Excluding the materially lower effective tax rate, the reported profit before tax of N30.2 billion (+9% QoQ) represent c.26% of our FY19 estimates.
On net interest income, the gains stemmed from a faster expansion in interest income (+4.9% QoQ) relative interest expense (+3.7% QoQ), both coming in line with our estimate. On the former, the increase emanated largely from interest on interbank placements of N4.5 billion compared to a reversal of N687 million in the prior quarter. Also, the bank booked modest increase on interest on loans (+1.7% QoQ), which combined with the net positive interest on interbank neutered decline in interest on investment securities (-3% QoQ), to support a slower moderation in assets yield by 15bps QoQ. Elsewhere, funding cost moderated at a much slower pace of 10bps QoQ to 3.8% following higher interest on interbank takings (+141% QoQ), which outweighed slower growth on debt services (+1.7% QoQ) and decline on interest on customers deposit (-1% QoQ) – reflecting expansion in CASA share of deposits by 218bps QoQ to 79.1%. Accordingly, NIM dropped 5bps QoQ.
Perusing the balance sheet, net loan book declined 1.5% YtD (gross loan book: -1.5% YtD) to N1.7 trillion, with a complementary decline in investment securities by 2.2% YtD. Deposit book remained strong, expanding 5.4%, largely 10.2% increase in current account (+10.2% YtD) and term deposits (+3.6% YtD). On regulatory position, the bank’s liquidity ratio stayed strong at 50% (50% in FY 18), NPL moderated to 5.29% (FY 18: 6.5%) with capital adequacy ratio of 24% (FY 18: 24%).
Rest of Africa to remain the harbinger of growth in near term.
In our stock update published earlier in the month (See report: Rest of Africa to drive earnings growth in near term), we guided that while the bank recorded sluggish performance over 2018, UBA growth story across Africa remain compelling. Particularly, we guided to a meaningful growth in earnings over 2019 on the back of strong retail deposit growth, increase in loan book, expansion in trading book and net fee income, and healthier asset quality. Consequently, we modeled FY 19E earnings growth of 10.8% YoY to N87.1 billion, with FY 20F and FY 21F growth forecasts of 6% and 5% respectively. With the performance across income lines (net interest income and NIR), opex and credit loss provisioning coming largely in line with our estimate, even PBT, we have left our model unchanged and maintain our FVE of N13.04/share with a STRONG BUY rating. UBA trades at FY 19E P/B of 0.43x, a discount to Tier 1 average of 1.0x.