01-Feb-2017
NBAD - 4Q16 results: Brexit and EGP free float weigh on revenue
Rating: Buy
Price: AED10.4
Target Price: AED10.8
Earnings flat Q-o-Q, in-line with estimates; 2016 DPS of AED0.45
NBAD reported a net profit of AED1.3bn, +0.6% Q-o-Q and +28% Y-o-Y. Earnings were in-line with our estimate and consensus (AED1.3bn) as good cost control and strong AFS gains offset weaker-than-expected fees. NBAD proposed a cash DPS of AED0.45 (yield: 4.3%), also in-line with our forecast. Its international business (19% of group’s revenue) had to cope with headwinds from Brexit and the EGP float, as these hit FX income, loan and deposit growth. NBAD maintained its cost discipline (opex flat for the past eight quarters), even after incorporating certain integration costs for the merger.
Spreads preserved despite boost to liquidity from government deposits
The bank’s loan book contracted 3% Q-o-Q as it unwound low-yield lending to FIs and as the devaluation of EGP and GBP dented its int’l loan book (25% of group loans). Deposit growth was robust at 4% Q-o-Q, driven by government deposits. The bank deployed its excess liquidity – LDR declined to 79% from 85% - mainly in cash, parked in central banks’ deposit facilities. The excess liquidity weighed on yield, but it was still able to maintain its spreads thanks to rising interest rates and a changing loan mix.
Provisioning under control
Credit quality trends continue to be impressive, which underscores NBAD’s strong credit risk mgmt. culture. NPL ratio remains low at 3.7%, while cost of risk at 59bps is under control. Retail and commercial segments were relatively weak, while the corporate segment continues to be robust. In 2016, 95% of the bank’s provisioning was attributable to retail and commercial. Mgmt. believes retail and SME segments will continue to pose risks in 2017. NBAD believes that while NPLs in certain SME segments (trading) has plateaued, the sub-contracting segment (sensitive to payment delays) and retail (impacted by lay-offs) are still vulnerable.
Shabbir Malik
Murad Ansari
Price: AED10.4
Target Price: AED10.8
Earnings flat Q-o-Q, in-line with estimates; 2016 DPS of AED0.45
NBAD reported a net profit of AED1.3bn, +0.6% Q-o-Q and +28% Y-o-Y. Earnings were in-line with our estimate and consensus (AED1.3bn) as good cost control and strong AFS gains offset weaker-than-expected fees. NBAD proposed a cash DPS of AED0.45 (yield: 4.3%), also in-line with our forecast. Its international business (19% of group’s revenue) had to cope with headwinds from Brexit and the EGP float, as these hit FX income, loan and deposit growth. NBAD maintained its cost discipline (opex flat for the past eight quarters), even after incorporating certain integration costs for the merger.
Spreads preserved despite boost to liquidity from government deposits
The bank’s loan book contracted 3% Q-o-Q as it unwound low-yield lending to FIs and as the devaluation of EGP and GBP dented its int’l loan book (25% of group loans). Deposit growth was robust at 4% Q-o-Q, driven by government deposits. The bank deployed its excess liquidity – LDR declined to 79% from 85% - mainly in cash, parked in central banks’ deposit facilities. The excess liquidity weighed on yield, but it was still able to maintain its spreads thanks to rising interest rates and a changing loan mix.
Provisioning under control
Credit quality trends continue to be impressive, which underscores NBAD’s strong credit risk mgmt. culture. NPL ratio remains low at 3.7%, while cost of risk at 59bps is under control. Retail and commercial segments were relatively weak, while the corporate segment continues to be robust. In 2016, 95% of the bank’s provisioning was attributable to retail and commercial. Mgmt. believes retail and SME segments will continue to pose risks in 2017. NBAD believes that while NPLs in certain SME segments (trading) has plateaued, the sub-contracting segment (sensitive to payment delays) and retail (impacted by lay-offs) are still vulnerable.
Shabbir Malik
Murad Ansari