Barclays Bank of Kenya IOC

8/3/2019 Barclays Bank of Kenya IOC

1/6ndard Investment Bank

We i

(fair

1.12 (

expaadva

staff

of ma

Over

think

on d

sheet

We v

adeqgrow

expe

3 yea

warra

indivi

positi

For 2

adjus

forec

and P

Corp

comp

NPLs)

mana

To thi

inter

The

larges

good

will hoffer

Furth

inco

supp

2007

guide

negli

unlik

half t

mainl

and i

liquid

EQUITY RESEARCH

02 November 2011

Recommendation: HOLD

Operating performance

FY10 FY11 FY12

EPS (KES) 1.95* 1.63 1.88

% growth 74.0% -16.2% 15.2%

DPS (KES) 1.36 0.90 1.10

Dividend payout 69.8% 55.0% 58.5%

NAV (KES) 5.79 5.81 6.79

PE (x) 7.4 8.8 7.7PB (x) 2.5 2.5 2.1

*Normalized KES 1.44 (+28.4% y/y)

Trading data

Price 14.45

Market cap KES m 78,486

USD m 792.8

Avg.daily value traded KES m 11.03

(3 months) USDk 111,352

Bloomberg BCBL KN

Share price graph (Jan Nov 11)

Analyst:

Francis Mwangi, CFA

[email protected]

Tel: +254 (20) 22 20 225

www.sib.co.ke

Standard Investment Bank Research

is also available to our clients on:

Bloomberg: SIBX

10

12

14

16

18

20

Import

Barclays Bank of KInitiation of Coverage

itiate coverage on Barclays Bank of Kenya (BBK)

alue KES 12.87; 11% downside). In 3Q11, BBK post

+16.8% q/q). Performance q/q was better than exp

sion to 11.9% from 9.7% in 2Q11. Most impressiveces (8% y/y; 7.7% q/q) & customer deposits (6.3%

costs (15% y/y; 6.4% q/q). NIR however disappoint

rginal growth in fee income and 8% q/q decline in f

ll, we are happy with the results, specifically the gr

points to improved risk appetite (over the past 3

-risking the business, leading to BBKs continued

growth).

iew BBK as a stable business that will deliver c

ate return on the back of operational efficiencies ah (FY11F; 7.1% ROaA & 28.2% ROaE). However, at

sive against a sector PB 2.2x. In our view, while BB

rs may allow it to weather current turbulent tim

nt its current premium especially since its loan b

duals) faces the same risk as that of other banks tr

oned to deliver higher growth.

011, we forecast EPS of KES 1.63 (+13.5% y/y

ting FY10 earnings for gains on sale of custody

asts; EPS 1.88 (+15.2 y/y) and NAV KES 6.79, BB

B of 2.1x.

rate banking key competence: consumer bankin

etence is in corporate banking (62% of total asset

. While still profitable, the consumer business

gement repositions the unit to service middle incom

is end, in 2010, supported by a new IT platform, man

et banking to retail clients (previously internet ban

ank also opened specific late night centers access

t credit card issuer in the market, we believe BBK

ill to support managements push for a certain cali

owever remain stiff since smaller banks targeting samore personalized service).

er cut in costs versus income growth. Despite u

e growth over the past 3 years, BBKs ROaA

rted by cut in operating costs, primarily staff costs

to 6,900, by end of FY10 the number had been cut to

s that there is scope to reduce costs further (mai

ible impact on income growth. In our view, furth

ly since the bank currently operates 119 branches a

he staff in 2006. On revenue, like most other banks,

y driven by widening NIM. Over the next 3 years w

come growth (earnings could easily surprise as BBK i

ity).

nt disclosures on the last page

nya Limited3Q11 results review

with a HOLD recommendation

ed 11.2% y/y rise in EPS to KES

ected, supported by strong NIM

in the results was the growth in/y; 5.7% q/q) and further cut in

d declining 3%q/q on the back

rex income.

wth in balance sheet which we

ears management has focused

underperformance in balance

nsistent earnings growth and

nd modest but resilient incomecurrent PB of 2.5x, BBK remains

s cost cutting drive in the past

s, we still believe this doesnt

ook (48% unsecured - loans to

ding at lower PB multiples and

on normalized earnings after

business). Against our FY12

trades at forward PE of 7.7x

g at cross-roads. BBKs main

, ROaA of 14% and near zero

remains at cross-roads as

e and high net worth clientele.

agement rolled-out mobile and

king was only for corporates).

ible 7 days a week. Being the

s consumer unit has sufficient

er of retail client (competition

me clients are better placed to

nderperforming the sector in

& ROaE remained impressive

(while BBK doubled its staff in

just over 5,000). Management

ly other operating costs) with

r aggressive staff cuts remain

compared to 60 branches and

e see BBKs FY12 performance

e see BBK posting higher asset

s currently sitting on significant



Summary Financials

Income statement KESm 3

Interest income 13

Interest expense -1

Net Interest Income 12

Fee & commission income 5

Foreign exchange income 1

Other income

Total Operating income 19

Staff costs -6

D & A

Other operating costs -4

Total operating costs -11

Profit before impairments 8

Loan loss provision -1

Profit before Tax 7

Taxation -1

Attributable income 5

Weighted shares (m) 5

Year end shares (m) 5

EPS (KES)

Source: Company fillings

Balance sheet KESm 3

Cash and Central bank balances 10

Dues from other banks

Due from group 5

Total government securities 54Net Loans & Advances 91

Fixed assets 6

Net Intangible assets

Other Assets 6

Total assets 176

Customer deposits 127

Due to other banks

Due to group 7

Other liabilities 13

Shareholder equity 28

Total liabilities and equity 176

Source: Company fillings

Import


Q10 3Q11 %ch y/

,272 12,699 -4.

,220 -732 -40.

,052 11,966 -0.

,558 5,157 -7.

,802 2,093 16.

326 335 2.

,738 19,552 -0.

,413 -5,445 -15.

-765 -936 22.

,372 -3,783 -13.

,550 -10,165 -12.

,188 9,387 14.

,174 -520 -55.

,014 8,867 26.

,521 -2,761 81.

,493 6,106 11.

,432 5,432

,432 5,432

1.01 1.12 11.

Q10 3Q11 %ch y/

,789 13,698 27.

427 1,243 191.

,776 7,073 22.

,092 46,364 -14.,685 98,901 7.

,425 2,912 -54.

680 3,458 408.

,998 7,001 -8.

,872 180,649 2.

,731 135,813 6.

79 105 32.

,342 3,489 -52.

,127 12,011 -8.

,593 29,232 2.

,872 180,649 2.



y %ch q/q

3 24.0

0 37.6

7 23.1

2 2.8

2 -8.0

8 -85.5

9 12.4

1 -6.4

4 14.2

5 16.4

0 3.4

6 22.4

7 226.6

4 19.7

5 27.0

2 16.8

2 16.8

y %ch q/q

0 43.2

0 962.1

5 53.0

3 -18.49 7.7

7 -6.9

3 6.6

8 -2.9

1 2.3

3 5.7

7 -61.3

5 -26.0

5 -26.5

2 9.1

1 2.3



Valuation Methodology

Our fair value is derived using a price to

forecast accruing net dividends for FY11,terminal value. We then discount the d

1.2x)

In deriving BBKs 3 year exit value, we ap

discount is based on our assumption t

modest ROaA & ROaE improvement.

Relative Price to book valuation

Dividend per share

3 year exit value

Discount period

Discount rate

Discount factor

Present Value dividend

Cumulative PV of dividends

PV of terminal value

Per share value

Assumed PB

Upside/(downside)Current price

Source: Standard Investment Bank

Sensitivity Analysis

(PB versus COE)

14.4%

1.3 10.30

1.5 11.48

1.7 12.65

1.9 13.83

2.0 14.42

2.1 15.01

2.2 15.592.3 16.18

Source: Standard Investment Bank estimates

Valuation Multiples 2009A

ROaA 5.4%

ROaE 27.3%

Price to book value (x) 3.2

Price to earnings (x) 12.9

Dividend payout 55.7%

Dividend yield 4.3%

EPS (KES) 1.12

DPS (KES) 0.63

NAV (KES) 4.46

Source: Company fillings, Standard Investment Ban

Import


book (PB) approach based on a 3 year holding peri

FY12 & FY13, then we use a subjective 3 year forwarived cash - flows at 17.4% (risk free rate of 9%, ris

ply a 5% discount to our assumed 3 year sustainable

at BBK earnings growth will continue lagging most

FY11 FY12 FY13 FY1

0.85 1.05 1.23

17.1

0.17 1.17 2.17 3.1

17.4% 17.4% 17.4% 17.4

0.97 0.83 0.71 0.6

0.83 0.87 0.87

2.57

10.30

12.87

1.9

-10.9%14.45

15.4% 16.4% 17.4% 18.4%

10.06 9.84 9.62 9.40

11.21 10.95 10.70 10.46

12.35 12.06 11.78 11.52

13.50 13.18 12.87 12.57

14.07 13.73 13.41 13.10

14.64 14.29 13.95 13.63

15.22 14.85 14.50 14.1515.79 15.41 15.04 14.68

2010A 2011F 2012F

8.0% 7.1% 7.6%

38.1% 28.2% 29.9%

2.5 2.5 2.1

7.4 8.8 7.7

69.8% 55.0% 58.5%

9.4% 6.2% 7.6%

1.95 1.63 1.88

1.36 0.90 1.10

5.79 5.81 6.79

k estimates



od. Using the approach, we

rd PB (1.9x), to derive BBKsk premium of 7% & beta of

banking sector PB of 2x. The

of its peers, translating to

4

2

7

0

19.4% 20.4%

9.20 9.00

10.23 10.00

11.25 11.00

12.28 12.00

12.80 12.50

13.31 13.00

13.82 13.5014.34 14.00

2013F 2014F

7.8% 8.2%

28.6% 28.6%

1.8 1.6

6.9 6.0

62.0% 62.0%

9.0% 10.3%

2.09 2.41

1.30 1.50

7.83 9.01



Performance review

Source: Company fillings, Standard Investment Bank es

BALANCE SHEET

Year to December (KES m)

Cash and Central bank balances

Dues from other banks

Total government securities

Net Loans & Advances

Fixed assetsNet Intangible assets

Other Assets

Total assets

Customer deposits

Due to other banks

Due from group companies

Total debt

Other liabilities

Total shareholder equity

Total liabilities and equity

INCOME STATEMENT

Year to December (KES m)Interest income

Interest expense

Net Interest Income

Net Fee and commission income

Foreign exchange income

Other operating income

Total Operating income

Staff costs

D & A

Other operating costs

Total operating costs

Profit before impairments

Loan loss provision

Exceptional items

Profit before Tax

Taxation

Profit after Tax

Attributable income

Weighted shares (m)

Year end shares (m)

Earnings per share (KES)

Normalized EPS (KES)

Dividends per share (KES)

Payout ratio (%)

Import


timates

2008A 2009A 2010A

13,695 9,751 13,132

1,654 1,061 935

28,307 43,861 55,996

108,086 93,543 87,147 1

3,403 5,921 3,244418 558 3,448

12,947 10,181 8,514

168,510 164,876 172,416 1

126,408 125,869 123,826 1

1,401 262 92

9,883 3,986 1,571

4,618 4,328 4,351

5,736 6,220 11,110

20,464 24,211 31,466

168,510 164,876 172,416 1

2008A 2009A 2010A 217,821 17,517 17,131 1

-3,811 -2,748 -1,457 -

14,010 14,769 15,674 1

6,584 6,256 7,375

2,567 2,193 2,346

466 179 630

23,627 23,397 26,025 2

-7,109 -7,223 -8,398 -

-633 -928 -1,176 -

-6,586 -5,731 -4,475 -

-14,328 -13,882 -14,049 -1

9,299 9,515 11,976 1

-1,282 -513 -1,200

- - 2,777

8,017 9,002 13,553 1

-2,491 -2,911 -2,954 -

5,526 6,091 10,599

5,526 6,091 10,599

5,432 5,432 5,432

5,432 5,432 5,432

1.02 1.12 1.95

1.02 1.12 1.44

0.50 0.63 1.36

49% 55.7% 69.8% 5



2011F 2012F 2013F

7,489 18,813 21,458

1,195 1,309 1,534

6,722 47,926 50,435

0,667 108,504 119,185

3,541 3,444 3,3473,351 3,057 2,757

4,059 14,901 16,566

7,024 197,955 215,283

8,685 144,233 155,771

834 914 1,071

3,571 3,571 3,571

4,351 4,351 4,351

8,005 8,005 8,005

1,578 36,881 42,514

7,024 197,955 215,283

011F 2012F 2013F,692 19,750 21,047

,120 -1,427 -1,660

,572 18,322 19,386

,924 7,747 8,823

,933 3,372 3,710

473 510 541

,902 29,952 32,460

,138 -7,495 -8,020

,307 -1,392 -1,485

,013 -5,386 -5,700

,458 -14,274 -15,205

,443 15,679 17,256

-758 -1,061 -1,038

- - -

,686 14,618 16,218

,806 -4,385 -4,865

,880 10,233 11,352

,880 10,233 11,352

,432 5,432 5,432

,432 5,432 5,432

1.63 1.88 2.09

1.63 1.88 2.09

0.90 1.10 1.30

5.0% 58.5% 62.0%



Ratio review

Growth % (y-o-y )

Total Assets

Gross LoansNet Loans

Customer Deposits

NIR

Fees and commission income

Total operating income

Staff expense

Total operating expense

Profit before tax

EPS

DPS

BVPS

CAPITALISATION

Total risk weighted assets

Ordinary share capital

Retained Earnings

Total Tier 1 capital

Capital Adequacy (tier 1)

Minimum ratio required Tier 1/RWA

Equity/total deposits

Equity/net loans

Equity/total assets

LIQUIDITY

Gross loans/customer depositsNet loans to interest earning assets

Liquid assets/total assets

Liquid assets/total deposit liabilities

ASSET QUALITY

Loan loss reserve/gross loans

Loan Loss Reserves/NPL (coverage)

Non Performing Loans/Gross Loans (NPL ratio)

Non Performing Loans/Equity

Impairments IS/Avg gross loans

PROFITABILITY

Average yield on interest bearing assets

Average yield on interest bearing liabilities

Spread

Net interest margin

Cost to income

PBT margin

Effective tax rate

Source: Company fillings, Standard Investment Bank e

Import


2008A 2009A 2010A

6.9% -2.2% 4.6%

2.9% -13.0% -6.5%2.6% -13.5% -6.8%

15.9% -0.4% -1.6%

28.6% -10.3% 20.0%

10.0% -5.0% 17.9%

25.3% -1.0% 11.2%

55.6% 1.6% 16.3%

29.1% -3.1% 1.2%

12.5% 10.2% 74.0%

12.5% 10.2% 74.0%

21.2% 25.0% 118.0%

16.5% 18.3% 30.0%

2008A 2009A 2010A

133,040 115,880 106,928

2,716 2,716 2,716

17,363 19,599 25,709

20,079 22,315 28,425

15.1% 19.3% 26.6%

8.0% 8.0% 8.0%

16.2% 19.2% 25.4%

18.9% 25.9% 36.1%

12.1% 14.7% 18.3%

2008A 2009A 2010A

88.5% 77.3% 73.4%74.5% 64.6% 59.1%

26.3% 33.6% 39.3%

32.2% 42.1% 52.7%

2008A 2009A 2010A

3.4% 3.8% 4.2%

65.2% 59.9% 61.0%

5.0% 6.0% 6.4%

27.5% 24.3% 18.5%

1.16% 0.49% 1.28%

2008A 2009A 2010A

12.6% 12.1% 11.7%

2.8% 2.0% 1.1%

9.8% 10.1% 10.6%

9.9% 10.2% 10.7%

60.6% 59.3% 54.0%

33.9% 38.5% 52.1%

31.1% 32.3% 21.8%

timates



2011F 2012F 2013F

8.5% 5.8% 8.8%

15.0% 8.0% 10.0%15.5% 7.8% 9.8%

12.0% 4.0% 8.0%

-0.2% 12.6% 12.4%

-6.1% 11.9% 13.9%

3.4% 11.3% 8.4%

-15.0% 5.0% 7.0%

-4.2% 6.1% 6.5%

-16.2% 15.2% 10.9%

-16.2% 15.2% 10.9%

-34.0% 22.6% 17.6%

0.4% 16.8% 15.3%

2011F 2012F 2013F

32,033 140,020 154,388

2,716 2,716 2,716

23,323 27,570 31,884

26,039 30,286 34,600

19.7% 21.6% 22.4%

8.0% 8.0% 8.0%

22.8% 25.6% 27.3%

31.4% 34.0% 35.7%

16.9% 18.6% 19.7%

2011F 2012F 2013F

75.4% 78.3% 79.8%64.0% 64.8% 65.3%

36.4% 36.0% 36.1%

47.5% 47.9% 48.5%

2011F 2012F 2013F

3.7% 3.9% 4.1%

57.2% 62.3% 66.9%

6.1% 5.9% 5.7%

20.2% 18.1% 16.7%

0.78% 0.98% 0.88%

2011F 2012F 2013F

11.6% 12.2% 12.0%

0.8% 0.9% 1.0%

10.8% 11.2% 11.0%

10.9% 11.3% 11.1%

50.0% 47.7% 46.8%

47.2% 48.8% 50.0%

30.0% 30.0% 30.0%



KEY CONTACTS

Research

Francis Mwangi, CFA

[email protected]

Eric Musau

[email protected]

Deris Mogoi

[email protected]

Head of Trading

Tony [email protected]

Equity and Foreign Sales

Eric Ruenji

[email protected]

Legal Disclaimer: The information/quips/quotes in t

Internet) that are deemed reliable, along with publi

researched independently by SIB and SIB does not v

anyone with their views in the newsletter as the new

change without notice and SIB is not obligated to

informational purposes and shall therefore not be vie

or subscribe to specific financial instruments. SIB and

forth in the report. Readers who are interested in m

investment options on offer. Investments always en

currencies. Investors investment objectives and fina

other information from SIB are only intended for pr

information on the subjects it discusses.

Import


his newsletter originates from domestic and international inform

c information, and SIBs own processing and estimates at the ti

ouch for the precision, veracity or rightness of the information.

sletter is issue oriented and one can lose money based on our vie

pdate, rectify or change the report if assumptions change. Th

wed as recommendation/advice to make or not make a particular

its employees are not responsible for transactions that may be ca

aking transactions are urged to seek expert advice and familiari

tail financial risk, including risk due to local investments and fl

ncial position vary. It should be noted that past returns do not in

ivate use. This report is a short compilation and should not be



ation public sources (including the

e. The information has not been

SIB does not intend to disappoint

s. The opinions of the authors can

e newsletter is only published for

investment or an offer to buy, sell

rried out based on information put

e themselves thoroughly with the

ctuations in the exchange rate of

dicate future returns. Reports and

considered to contain all available

Barclays Bank of Kenya IOC

Documents

Transcript of Barclays Bank of Kenya IOC