Stanbic IBTC Holdings Plc: A profitable year ahead

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Introduction
We expect the 2017 financial year to be a great year for Stanbic IBTC Holdings Plc. If its quarter one results are anything to go by, and if it is able to sustain the momentum it begun the year with, the 2017 FY should be one of higher profits, better dividends, and better profitability rations.
This will be a continuation of the 2016 financial year which was of itself a good one for the company. It held its ground in 2016, earned more revenue and turned a better profit, and this had a bettering effect on almost all profitability ratios.

Core operations
Following the general rule/phenomenon prevalent in the banking industry for the 2016 financial year, Stanbic recorded a commendable growth in turnover for the year and was able to sustain whatever earnings it made to the bottom-line. With a revenue of N156.4 billion derived from both core and non-core banking operations, the bank was able to improve its preceding year’s gross revenue by 11.7 per cent (revenue was N140.0 billion in 2015).
For the year, pre tax profit was N37.2 billion, and this was a 57 per cent growth over the level in the prior year. In the same manner, after tax profit improved over that of the preceding year by 50.8 per cent to end at N28.5 billion. It is important to note that this bank’s growth in pre and after tax profits are mostly higher than those of most other banks.
Fewer clients patronised Stanbic collectively in terms of taking out loans, overdrafts and advances during the course of the year, pushing the bank’s loan portfolio to N368.2 billion in 2016 from N380.3 billion before. Despite this, average lending rate further increased over the preceding year’s (to 23.4 per cent from 21.7 per cent). It is also important to note that Stanbic has one of the higher average lending rate in the Nigerian banking industry. Meanwhile, deposits for the year were collectively higher than deposits in 2015 (2016: N614.7 billion, 2015: N588.9 billion), and average deposit interest rate dipped to 4.8 per cent from 6.6 per cent. This means that the bank charged its lenders a higher interest rate, but paid its depositors a lower interest.
As a direct result, the bank’s net interest margin, the true test of a bank’s effectiveness in its core banking operations of lending and borrowing, improved to 66.2 per cent in 2016 from 53.0 per cent in 2015.
Because of higher profits, earnings per share, was predictably higher than that of the prior year, closing at 246 kobo, 58.7 per cent more than the 155 kobo received in 2015. Shareholders received only 5 kobo as dividend, same as they did in the prior year.

Profitability ratios
Despite its better earnings and profit, the bank did not record a better result in terms of profit margin in 2016 as was expected. The bank recorded a profit margin that was lower than that of 2015. At 23.8 per cent (down from 28.7 per cent in 2015), the bank recorded a pretax profit of N23.80 for every N100 earned during the course of the year, as compared to N28.70 in 2015.
For Stanbic IBTC, assets deployed earned more in 2016 than it did in 2015. Return on assets (ROA) for the year stood at 3.5 per cent in 2016, as compared to 2.5 per cent in 2015. As per return on equity (ROE), the bank made an after-tax profit of N20.40, also a progression over the profit of N14.70 made in 2015. These results were also mostly higher than what were generally obtainable in the banking industry for the same review period.
Earnings per employee improved to N72.6 million on the average, up from N47.5 million in 2015.

Other ratios
For the year, the bank recorded a higher proportion of loans classified as non-performing in 2016 over the prior year. At 4.7 per cent, the result was higher than the 3.8 per cent recorded in 2015. The result also overshot the regulatory threshold of 3.66 per cent and suggests a not so effective recovery strategy for loans.
Stanbic IBTC’s capital adequacy improved by increasing in 2016 to 22.8 per cent. Higher than the 21.3 per cent recorded in 2015, the result is also much higher than the CBN mandated rate for Nigerian Banks. This shows that the bank is doing very well in its primary business of giving out loans.
With a debt to equity ratio of 6.5, the bank is using N6.50 of liabilities in addition to each N1.00 of stockholders equity. In other words, the bank is using N7.50 of total capital for every N1.00 of equity capital, a little higher than it did in the erstwhile year.

Sustainable growth
Retention ratio for Stanbic IBTC in 2016 was 0.98 times and this was not much different from the 0.97 times retention ratio in 2015.
With asset turnover being 0.15 and assets/equity being 7.52 times, analysis shows that sustainable growth for 2016 was 26.3 per cent, higher than the 17.9 per cent of 2015, and this means that the bank’s growth ceiling, utilizing only its own source of funding for growth, increased. Meanwhile, actual growth was 11.7 per cent. The bank therefore over performed its inherent potential for growth.

Stock value
Stanbic IBTC’s stock is overvalued. Currently trading at N39.20 (as at September 15 2017), the Stanbic IBTC Stock is one of the higher priced banking stocks on the NSE and is currently being sold at a higher price than it should.
Net assets per share is N14.08, much lower than the current market price of N40.00, and is indicative of overvaluation. Book value at N140.8 billion is also much lower than current market capitalisation which stands at N400 billion. In fact, it is less than half the value of the current market, and this is a sure sign of overvaluation.

Unique strategies
Stanbic IBTC was incorporated as Investment Banking and Trust Company Limited (IBTC), a private limited liability company in 1989. The bank’s merchant banking license was converted to a universal banking license in 2002, pursuant to the universal banking guidelines of the CBN. In 2005, IBTC became a public company and its shares were listed on The Nigerian Stock Exchange. That same year, it merged with Chartered Bank PLC and Regent Bank Plc and changed its name to IBTC Chartered Bank Plc.
In 2007, IBTC Chartered merged with Stanbic Bank Nigeria Limited, a wholly owned subsidiary of Stanbic Africa Holdings Limited (SAHL), which in turn is a subsidiary of Standard Bank Group Limited of South Africa. As part of the transaction that resulted in the combination of IBTC Chartered and Stanbic Bank, SAHL acquired a majority shareholding (52.8%) in the enlarged bank, which was named Stanbic IBTC Bank PLC.
On 8 November 2012, Stanbic IBTC officially adopted a holding company structure in compliance with the revised regulatory framework by the Central Bank of Nigeria which requires banks to divest from non-core banking businesses or adopt a HoldCo structure.
Under the new structure, the subsidiaries of Stanbic IBTC Holdings PLC are Stanbic IBTC Bank, Stanbic IBTC Pension Managers Limited, Stanbic IBTC Asset Management Limited, Stanbic IBTC Trustees Limited, Stanbic IBTC Capital Limited, Stanbic IBTC Stockbrokers Limited, Stanbic IBTC Insurance Brokers Limited, Stanbic IBTC Ventures Limited and Stanbic IBTC Investments Ltd.

Unaudited result
The bank’s quarter one results for 2017 shows promise. Not only was interest income higher than that of the corresponding figure in the preceding year, pre-tax profit was also higher lower, growing by as much as 82.4 per cent to N18.6 billion from N10.2 billion. Net interest margin also grew to 70.5 per cent from 60.2 per cent in the prior year.
Expectedly, profit margin for the period was higher than that of the erstwhile year. If this trend continues, the bank may perform even better in 2017 than it did in 2016.

Conclusion
We are quite impressed with the bank’s 2016 operations, and expect it to do even better in 2017.
*Source: Stanbic’s 2016 financial report
*Stanbic’s 2017 unaudited results
*The Nigerian Stock Exchange

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