Академический Документы
Профессиональный Документы
Культура Документы
Nigeria: A contrarian trade not for risk averse/short-term investors Kenya: Pockets of value emerging, higher valuation risk matching higher ROEs Peter Mushangwe Lawrence Madzwara
Salient takeaways
All the banks under our coverage have reported their 1H11 results, hence we revise our assumptions to reflect 1H11 trends and medium term management teams strategic guidance; We still believe the medium- to long-term views are more important than the short-term views that could be captured by our FY11 forecasts. However, in Nigeria, we believe that earnings recovery, particularly driven by interest income and fee income growth rather than provisions/credit losses reductions, is a critical catalyst for the rebound of share prices; Primary potential risks remain macro i.e. politics, inflation and global economic risks. All banks under our coverage, on average carry ample capital and liquidity. Credit risks are still elevated in Nigeria but a firmer regulatory environment and lower risks (muted leverage) should tame them In Kenya them. Kenya, NPL formation could spike in 2H11 and 1H12 as inflation and drought effects kick in. Lower system coverage ratio is a disturbing risk; Kenyan banks trade at a premium to Nigerian banks at 2.2x vs. 0.9x to our FY11 BV respectively. H i l However, K Kenyan b k enjoy hi h banks j higher ROE ROEs. Ni Nigeria i banks ROE recovery should see expansion in PBVRs; Kenyan banks YTD return in US$-terms is -30.3% vs. a -19.8% in KES-terms. The stable NGN protected US$ returns at -30.6% vs. -29.4% in NGN-terms; Core holdings are Zenith Bank, Diamond bank, GT Bank, KCB, Equity Bank, and DFCU in the three countries.
2
Buying most of the Nigerian banks on low valuation risk; Kenya and Uganda are more expensive but show p g p pockets of value
Stock Nigeria Access Diamond First GTBank Ticker Bloomberg AC C ESS NL DIAMOND B NL FIRSTBAN NL GUARANTY NL Market cap US$mn 679.5 382.5 2,294.9 2,411.2 Current Target Potential Price Price NGN 5.85 4.07 10.83 12.74 NGN 10.43 7.87 12.53 16.77 78.3% 93.5% 15.7% 31.6% BUY BUY HOLD BUY BUY BUY HOLD BUY Room to grow RWAs in the upturn cycle; Short term ALM benefits. Poorer deposit structure a risk; M&A risks Strong NIM and deposit structure possible rerating after strong structure, underperformance; Asset quality remains an issue; Liquidity ratio building up but C AR on lower end. Higher unsecured book; Strong footprint and remains a key player; Normalization of cost/income ratio beneficial; Best-in-class ROE due to efficiency; Our Justified PBVR > current, higher PBVR than peers can scare some investors; Our Buy recommendation based on low valuation risk with submean PBVR ; Strategic/execution risks remain C onservative bank but consistent; Ample room to grow RWAs; Strong asset quality and deposit structure. Our core holding. Old rating Current Rating Stock views
UBA
UBA NL
875.6
4.17
5.75
37.8%
HOLD
BUY
2,517.9 US$mn 767.5 531.4 796.8 638.2 603.2 US$mn 506.19 103.58
12.35 KES 13.00 14.20 19.90 19.80 201.00 UGX 140 1005
15.60 KES 15.61 17.39 26.60 25.97 241.16 UGX 142 1163
26.3%
BUY
BUY
Strong franchise but no regional play; C onstrained asset growth despite high C AR (in pursuit of quality assets); Disconnect between ROE and valuation and a poorer ROE structure; Higher leverage vs. peers; higher NPL overhang; Strong franchise in a strong market segment; regional play to become value accretive in a material manner. Elevated NPL risks; Regional markets no more a drag on local earnings; strong R i l k t d l l i t mortgage player; Pure Kenyan play, most efficient bank in the system leading to a stronger ROA; losing market share and poorer C AR
1.2% 15.7%
SELL BUY
HOLD BUY
#1 bank that could find it difficult to grow RWAs meaningfully; high valuation risk trading at 4 6x FY11 BV 4.6x Improving deposit mix; strong local franchise that can break the internationals hegemony yet lower valuation risk; Asset quality concerns.
Earnings/share
2012F 1.33 41% 0.52 0 52 2013F 1.52 15% 0.82 0 82
Nigeria Ngn
Access Growth Diamond Growth First Growth GTBank Growth UBA Growth Zenith Growth 550,348 28% 370,829 370 829 26% 1,468,699 28% 692,687 17% 728,623 728 623 16% 988,554 39%
139%
2.37 25% 2.24 21% 0.69 0 69 31% 2.36 20%
58%
3.07 30% 2.72 21% 1.09 1 09 58% 2.88 22%
Kenya Kes
Barclays y Growth Cooperative Growth Equity Growth KCB Growth Stanchart Growth 95,346 , 9% 113,813 31% 104,431 20% 189,096 189 096 28% 92,464 53% 114,416 , 20% 136,576 20% 127,927 23% 226,915 226 915 20% 106,333 15% 131,578 , 15% 160,477 18% 153,513 20% 272,298 272 298 20% 122,283 15% 136,209 , 10% 151,751 23% 130,538 20% 236,370 236 370 20% 115,580 15% 152,554 , 12% 182,101 20% 159,909 23% 283,643 283 643 20% 132,917 15% 175,437 , 15% 213,969 18% 191,891 20% 340,372 340 372 20% 152,854 15% 1.36 -30% 1.94 48% 2.82 46% 3.14 3 14 28% 16.41 -12% 1.65 21% 2.12 9% 3.33 18% 3.58 3 58 14% 19.23 1.81 10% 2.39 13% 3.85 16% 4.94 4 94 38% 22.78
17%
11.90
18%
13.94
Uganda Ugx
Stanbic Growth DFCU Growth 1,553,275 29% 582,140 47% 1,824,600 17% 688,370 18% 2,159,361 18% 816,004 19% 2,071,033 13% 591,618 24% 2,432,800 17% 721,773 22% 2,879,148 18% 880,564 22% 9.10 29% 46.68 26%
31%
56.59
17%
83.08
21%
47%
Valuation: Kenyan banks trade at a premium; We have increased discount rates due to the extreme negative sentiment in Nigeria g g
Valuation Summary
Stock Nigeria Access Diamond First GTBank UBA Zenith Average Kenya Barclays C ooperative Equity KC B Stanchart Average Uganda DFC U Stanbic Average US$mn 284.03 849.61 8.6 15.4 12.0 7.1 11.8 9.4 6.0 10.0 8.0 2.5 4.6 3.6 2.0 3.7 2.9 2.0 3.0 2.5 3.0% 3.4% 3.2% 3.1% 3.4% 3.2% 3.0% 3.3% 3.2% 28.8% 31.5% 30.2% 28.5% 30.3% 29.4% 32.9% 27.5% 30.2% 2.9 4.7 3.8 19.0% 19.8% 19.4% US$mn 1,874.1 1,677.6 1,554.5 1 554 5 2,732.1 1,551.6 9.6 7.3 7.1 71 6.3 12.3 8.5 7.9 6.7 6.0 60 5.5 10.5 7.3 7.2 5.9 5.2 52 4.0 8.8 6.2 2.7 1.8 1.9 19 1.3 3.1 2.2 2.3 1.5 1.5 15 1.1 2.8 1.9 2.0 1.3 1.3 13 1.0 2.5 1.6 4.4% 3.5% 5.6% 5 6% 2.9% 2.9% 3.8% 4.4% 3.2% 5.4% 5 4% 2.9% 2.9% 3.8% 4.3% 3.1% 5.2% 5 2% 3.3% 2.9% 3.7% 28.0% 24.8% 26.9% 26 9% 20.6% 25.3% 25.1% 29.4% 22.8% 25.9% 25 9% 20.8% 25.3% 24.8% 28.1% 21.7% 24.7% 24 7% 24.2% 25.3% 24.8% 3.2 2.2 2.5 25 1.7 3.7 2.7 17.3% 18.5% 18.0% 18 0% 18.3% 17.5% 17.9% Total assets 2010A US$mn 4,087.4 3,166.9 14,969.2 7,480.5 10,504.5 12,305.4 6.2 18.7 5.7 6.9 7.9 6.3 8.6 4.4 7.8 4.6 5.7 6.1 5.2 5.6 3.8 5.0 3.5 4.7 3.8 4.3 4.2 0.6 0.5 0.9 1.8 0.7 1.0 0.9 0.5 0.5 0.8 1.6 0.7 0.9 0.8 0.5 0.4 0.6 1.5 0.7 0.9 0.8 1.4% 0.4% 2.1% 3.9% 0.9% 2.6% 1.9% 1.6% 0.8% 1.9% 3.8% 1.0% 2.6% 1.9% 1.6% 1.0% 2.1% 3.9% 1.4% 2.6% 2.1% 9.0% 2.8% 15.7% 25.9% 9.2% 16.4% 13.2% 11.7% 6.2% 16.6% 27.9% 11.6% 18.0% 15.3% 12.2% 8.9% 17.9% 30.6% 17.4% 20.2% 17.9% 0.3 0.2 0.7 2.4 0.5 0.9 0.82 20.8% 22.1% 20.3% 19.3% 20.8% 19.3% 20.4% Price/Earnings 2011F 2012F 2013F Price/Book Value 2011F 2012F 2013F Return on Assets 2011F 2012F 2013F Return on Equity 2011F 2012F 2013F Justfied CoE PBVR
Valuation: Kenyan banks premium explained by superior ROE; Nigeria ROE recovery should provide an attractive risk/return profile g y p p
5.0 PBVR 4.5 4.0 3.5 3.0 2.5 2.0 Coop 1.5 KCB 1.0 0.5 05 0% 5% 10% 15% ROE 20% 25% 30% 35% Diamond Access Nigeria UBA First Zenith StanChart Barclays Kenya Equity GTbank GT bank DFCU Stanbic
10
Capital and liquidity levels of most banks are sufficient to support material loan growth g
Other Salient information
Stock Total deposits Total loans Rank CAR Leverage LDR Liquidity NIM Credit cost ratio NII/Op. income Profits/ Deposits
CIR
Nigeria Access Diamond First GTBank UBA Zenith Average Kenya Barclays C ooperative Equity KC B Stanchart Average Uganda d DFC U Stanbic Average
# 5 6 1 4 3 2
X 6.6 7.3 7.6 6.7 9.8 6.2 7.4 6.7 7.0 4.8 7.2 8.8 6.9 8.9 10.4 9.6
FY11 82.5% 75.0% 75.0% 70.0% 50.0% 62.5% 69.2% 70.0% 75.0% 80.0% 80.0% 80.0% 77.0% 70.0% 75.0% 72.5%
3 2 4 1 5
209.42 733.11
206.07 549.83
2 1
11
Ticker Bloomberg
ACCESS NL DIAMOND B NL FIRSTBAN NL GUARANTY NL UBA NL ZENITHBAN NL
Abslolute LC return
vs. Index in LC
Kenya
Barclays Cooperative C ti Equity KCB Stanchart Average
Bloomberg
BCBL KN COOP KN EQBNK KN KNCB KN SCBL KN
US$mn
1,116.16 717.67 717 67 1,105.97 907.61 826.59
KES
13.1 14.2 14 2 19.9 19.55 208 -16.8% -25.3% 25 3% -25.6% -9.0% -22.1% -19.8% -27.7% -35.0% 35 0% -35.3% -20.9% -32.3% -30.3% 4.8% -3.7% 3 7% -4.0% 12.6% -0.5% 1.9% -8.8% -17.4% 17 4% -20.4% -13.9% -22.4% -16.6% -17.1% -25.0% 25 0% -27.6% -21.7% -29.5% -24.2% 6.3% -2.4% 2 4% -5.3% 1.1% -7.3% -1.5%
Uganda
Stanbic DFCU Average
Bloomberg
SBU UG DFCU UG
US$mn
670.83 103.58
UGX
141 1005 4.5% 22.3% 13.4% -14.6% 0.0% -7.3% 21.6% 39.3% 30.4% 1.8% 5.8% 3.8% -13.5% -10.1% -11.8% 12.4% 16.4% 14.4%
13
14