Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

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Financial Summary Income Statement Summary 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E Net Interest Income Before Loss Provision 2 353 6 261 11 942 26 031 36 226 44 166 53 647 69 911 Y-o-Y Growth 166.1% 90.7% 118.0% 39.2% 21.9% 21.5% 30.3% Non Interest Income 3 566 4 628 10 988 17 323 18 513 25 355 32 253 43 277 Y-o-Y Growth 29.8% 137.4% 57.7% 6.9% 37.0% 27.2% 34.2% Total Operating Income (incl Prov) 4 934 9 503 21 154 39 456 38 089 64 997 74 485 102 158 Y-o-Y Growth 92.6% 122.6% 86.5% (3.5%) 70.6% 14.6% 37.2% Operating Expense (4 183) (8 384) (13 111) (20 610) (35 914) (48 644) (51 267) (67 844) Y-o-Y Growth 100.4% 56.4% 57.2% 74.3% 35.4% 5.4% 32.3% Profit Before Tax 751 1 119 8 043 18 846 (3 482) 16 169 23 218 34 315 Y-o-Y Growth 49.1% 618.5% 134.3% (118.5%) (564.4%) 43.6% 47.8% Attributable Net Income/Profit After Tax 502 737 6 083 15 825 (4 195) 11 245 17 326 25 607 Y-o-Y Growth 47.0% 725.3% 160.1% (126.5%) (368.1%) 54.1% 47.8% Balance Sheet Summary 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E Cash & Short term Funds 11 812 46 264 158 433 585 706 157 770 128 577 127 211 173 081 Y-o-Y Growth 291.7% 242.5% 269.7% (73.1%) (18.5%) (1.1%) 36.1% Financial Assets held for Trading 33 497 53 976 42 193 104 831 44 605 37 661 48 610 58 174 Y-o-Y Growth 61.1% (21.8%) 148.5% (57.5%) (15.6%) 29.1% 19.7% Loans & Advances,Net 16 334 56 042 112 031 253 430 391 160 455 552 670 879 838 051 Y-o-Y Growth 243.1% 99.9% 126.2% 54.3% 16.5% 47.3% 24.9% Deposits 37 032 123 550 222 051 433 664 490 984 599 261 847 247 1 091 014 Y-o-Y Growth 233.6% 79.7% 95.3% 13.2% 22.1% 41.4% 28.8% Borrowings - - 14 652 2 604 81 89 98 Y-o-Y Growth NA NA NA (82.2%) (96.9%) 10.0% 10.0% Shareholder's Equity 14 072 28 894 28 385 171 861 168 346 175 370 183 840 199 128 Y-o-Y Growth 105.3% (1.8%) 505.5% (2.0%) 4.2% 4.8% 8.3% Per Share Data 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E Earning per Share (NGN) 11.5 6.6 87.2 171.0 (27.1) 64.8 97.3 143.9 Y-o-Y Growth (42.7%) 1217.4% 96.2% (115.8%) (339.2%) 50.2% 47.8% Dividend Per Share (NGN) 0.00 0.00 40.00 65.00 70.00 50.00 58.41 86.32 Y-o-Y Growth NA NA 62.5% 7.7% (28.6%) 16.8% 47.8% Book Value Per Share (NGN) 324.0 259.4 406.8 1 854.1 1 036.2 1 027.1 1 027.7 1 113.2 Y-o-Y Growth (20.0%) 56.8% 355.8% (44.1%) (0.9%) 0.1% 8.3% Tangible Book Value per share (NGN) 324.0 185.4 406.8 1 854.1 1 025.5 1 016.9 1 018.0 1 103.5 Y-o-Y Growth (42.8%) 119.4% 355.8% (44.7%) (0.8%) 0.1% 8.4% Key Ratios 2005 A 2006 A 2007 A 2008 A 2009 A 2010 A 2011 E 2012 E Gross Loan to Deposit Ratio 48.9% 50.9% 55.2% 61.1% 85.7% 81.9% 83.6% 80.9% Gross Loan to Fund Ratio 48.9% 50.9% 55.2% 57.6% 84.9% 81.8% 83.5% 80.9% Net Interest Income to total income 47.7% 65.9% 56.5% 66.0% 95.1% 68.0% 72.0% 68.4% Cost to Income Ratio 70.7% 77.0% 57.2% 47.5% 65.6% 70.0% 59.7% 59.9% Interest Income to average interest earning assets 6.2% 7.7% 6.9% 6.1% 7.9% 9.1% 8.6% 9.1% Interest expense to average interest bearing liabilities 4.3% 3.1% 2.9% 4.4% 6.4% 4.0% 3.5% 4.0% Net Interest Spread 1.9% 4.6% 4.1% 1.7% 1.5% 5.1% 5.1% 5.1% Net Income Margin 10.2% 7.8% 28.8% 40.1% (11.0%) 17.3% 23.3% 25.1% Accumulated Provision as a % of loans & Advances 9.6% 10.9% 8.6% 4.3% 9.9% 8.2% 5.3% 5.1% Return on Equity (average) 3.6% 3.4% 21.2% 15.8% -2.5% 6.5% 9.6% 13.4% Return on Assets (average) 0.7% 0.6% 2.4% 2.3% -0.5% 1.5% 1.8% 2.0% Non-interest income to total income 72.3% 48.7% 51.9% 43.9% 48.6% 39.0% 43.3% 42.4% Provision expense as a % of advances 5.4% 2.2% 1.4% 1.5% 6.8% 2.6% 2.4% 1.3% Advances to equity 116.1% 194.0% 394.7% 147.5% 232.4% 259.8% 364.9% 420.9% 8
EQUITY RESEARCH PAN-AFRICAN DECEMBER 2011 BANKING Headquartered in Togo, Ecobank Transnational Incorporated (ETI), a public limited liability company, was established as a bank holding company in 1985 under a private sector initiative spearheaded by the Federation of West African Chambers of Commerce and Industry with the support of ECOWAS, in a bid to try and break the dominance of foreign and state owned banks in West Africa. ETI commenced operations with its first subsidiary in Togo in March 1988. Today, ETI is a full-service regional banking institution employing over 11,000 staff in 755 branches and offices in thirty SSA countries, namely Benin, Burkina Faso, Burundi, Cape Verde, Cameroon, Central African Republic, Chad, Congo Brazzaville, DRC, Côte d'Ivoire, Gabon, The Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Liberia, Malawi, Mali, Niger, Nigeria, Rwanda, Sao Tome & Principe, Senegal, Sierra Leone, Tanzania, Togo, Uganda, Zambia and Zimbabwe. • A difficult year for Ecobank Nigeria in 2009, in line with the broader industry, which saw it record a loss before tax of USD 16.6m, as well as losses by the southern Africa cluster, led to attributable earnings declining by 45.78% to USD 51.1m for the group. • In its 9M 11 results to September, net interest income put on 16.16% as NIMs improved to USD 399.0m. Net fee and commission went up by 45.16%, while net trading income also recorded strong growth of 64.79%. The CIR improved to 67.91% from 70.70%, and despite an increase in provision charges of 26.73% y-oy to USD 80.4m, attributable earnings closed the period at USD 106.6m, up 51.86%. • Nigeria has been an Achilles heel for ETI, where it has not really gained enough scale. To address this, ETI has taken over one of the rescued banks, Oceanic, which will substantially boost its market position. • Pre-Oceanic, we value ETI, based on a DCF valuation, at US 10.8c per share, representing upside of 68.2% against the US 6.42c it currently trades at on its most liquid listing in Nigeria. A coverage based PBV average based on the last published post merger pro-forma accounts suggests a valuation of US 10.3c per share. BUY. Recommendation BUY Bloomberg Code ETI:NL Current Price (USc) - BRVM 8.0 Current Price (USc) - GSE 6.8 Current Price (USc) - NSE 6.6 Target Price (USc) 10.8 Upside (%) - On most liquid listing (NSE) 64.6 Liquidity (NSE) Market Cap (USD 000s) 636 596 Shares (000) 9 913 368 Free Float (est. %) 60.0 Ave. daily vol ('000) - 1 yr. 2 155 Price Performance (NSE) Price, 12 months ago (USD) 9.5 Change (%) (30.8) Price, 6 months ago (USD) 9.4 Change (%) (30.0) Financials (USD 000s) 31 Dec F2010 2011F 2012F Loans & Advances 5 264 184 5 987 738 6 761 634 Net Interest Income (excl. Provisions) 474 771 548 990 728 058 Non-Interest Income 424 872 539 036 670 772 Attributable Earnings 112 716 154 313 209 343 EPS (USD) 1.1 1.6 2.5 DPS (USD) 0.4 0.5 0.9 NAV/Share (USD) 13.0 13.9 15.2 Valuation Ratios Current 2011F 2012F Earnings Yield* (%) 23.4 19.4 30.7 Dividend Yield (%) 6.8 10.8 12.8 PE* (x) 4.3 4.1 3.0 PBV (x) 0.47 0.46 0.42 RoaA (%) 1.2 1.4 1.6 RoaE (%) 8.9 11.6 14.5 Net Interest Margin (%) 6.8 7.2 8.0 Cost to Income Ratio (%) 69.9 68.6 67.2 * - trailing 1.5 1.4 1.3 ETI vs NSE ASI (Rebased) Strengths Largest pan-African geographical reach Robust cross border IT system/network Weaknesses Rollout costs have kept CIR higher than targets Nigeria has historically been a challenge in terms of 1.2 1.1 1 Strategic alliances with Bank of China, Nedbank and Old M utual consolidating market position, that situation prevails in eg Kenya High NPL ratios in East Africa 0.9 0.8 0.7 0.6 Oppo rtunities Nigeria and Ghana acquisitions should see an improved performance in those markets T hreats Any challenges around integrating Ecobank Nigeria and Oceanic could negatively impact the time to realise synergies 0.5 17-Nov-10 17-Dec-10 17-Jan-11 17-Feb-11 17-Mar-11 17-Apr-11 ETI 17-May-11 17-Jun-11 NSE ASI 17-Jul-11 17-Aug-11 17-Sep-11 17-Oct-11 17-Nov-11 Consolidation of other African operations as Increased regulatory risk due to cross border expansion expansion slows down Skills acquisition and retention across such a wide Will benefit from drive for increased intra regional trade geographical spread 9
Page 1 and 2: Nigeria Banking Sector Coverage - D
Page 3 and 4: Nigeria Banking Sector Overview Hav
Page 5 and 6: The breakdown, on a month-on-month
Page 7 and 8: EQUITY RESEARCH NIGERIA DECEMBER 20
Page 9: In its 9M 11 results to September,
Page 13 and 14: In its 9M 11 results to September,
Page 17 and 18: FCMB’s 9M 11 results to September
Page 21 and 22: The 9M results to 30 September 2011
Page 25 and 26: The 9M results to 30 September 2011
Page 29 and 30: StanbicIBTC’s 9M 11 results to 30
Page 33 and 34: Interest income remained under pres
Page 37 and 38: For the 9M results to 30 September
Page 39: Imara Africa Securities (A division

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