Stanbic-IBTC Third Quater 2024 :Displaying Uncommon Resourcefulness

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In the last financial year as it was the one before, and indeed many more years back in time, the competitive and operating space in the financial industry had been paved with serious obstacles, setting up the industry for failure. In the current one, it is not different. Rather, it is becoming more challenging with elevated levels of inflation and hawkish monetary policy from the regulatory authorities.

With the inclement external operating environment where banks do their businesses in Nigeria ,the apparent conflict faced by the corporate leaders in this business that is naturally coterminous with risk management ,no doubt, became more challenging. ; living up to their obligations to the five critical constituencies of the surplus deficit ,shareholders , regulatory authorities and the community at large became a harder nut for many leaders to crack in the current financial year..

For Stanbic ,the inclement operating environment and the apparent conflict in those five constituencies notwithstanding, it was an opportunity to turn adversity. The bank achieved resounding successes in the most critical aspects of its business , driven by its strategic capability.

In managing the risks ,the bank convincingly satisfied the five main constituencies. One is the surplus units from which it borrows .These units demand the best possible term in rates of interest and maturity structures and the maximum liquidity to enable them to have the funds back when they want them , or as agreed .

The second constituency is the deficit units which borrow from the banks . They want to borrow when they need the funds and as cheaply as possible .Like the lenders ,the borrowers also impose the obligation of maximum liquidity on the banks to enable them to obtain funds when they need them .

In addition to satisfying the surplus and the deficit sectors ,the shareholders must also be satisfied .These require maximum or adequate returns on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources and when needed .

To this is added the fourth constituency , the regulatory authorities ,whose interest is to ensure that the bank does not undertake excessive risks and that it operates prudently and within stipulated regulatory requirements .

There is , finally the community at large. As the provider of the environment within which it operates . the bank owes an obligation to the community to be a good corporate citizen, capable of maximizing the exploitation of the opportunities available and minimizing the threats in the environment .

While all the above constituencies are critical success factors in banking, the most critical remains the capability to create and deliver better values for money for the shareholders as the rest factors are the issues driving its value delivery to the shareholers , the business owners .

Delivering Better Value for Money

In the period under review, Stanbic-IBTC created and delivered better values for money to its shareholders with maximum and adequate returns on their investments.Most importantly ,what sets Stanbic Bank apart from its peers among the tier 2 banks is its unmatched resourcefulness.The first signal pointing towards this direction and confirming its leadership among its peers is its position as the most profitable tier 2 bank in Nigeria.

In the period under review, its Profit before tax inched up by 72% to ₦222.93 billion as against ₦129.46 billion in 2023 while its Profit after tax of ₦182.87 billion, up 67% compared to ₦109.25 billion in 2023 .

But the beauty of this organization is more than its mere profitability . With facts and figures over the years Stanbic Bank highly efficient profit machine . It has consistently reported the lowest cost to income ratio which some tier 1 banks could not achieve. In the first nine months of 2024 financial year, this bank has achieved what proved this belief further . Stanbic delivered values to its shareholders at a Cost to income ratio of 39.4% compared to 46.9% in the first nine months 2023.

The bank was able to maintain this feat with its capability to leverage its resources to gain better value for money with its core competencies in some strategic areas of its business. The key message from the leadership of this bank to its competitors is crystal clear : bigness without stretch and Just as bigness without stretch and leverage is obesity, smallness without stretch and leverage is impotence .Only a super bank with an efficient profit machine could deliver this feat in an inclement operating environment like Nigeria.

With this CIR , the bank is not only meeting the threshold level value but outperforming its peers in critical areas .To cement its place as the most profitable bank, post-tax return on equity (ROAE), and return on assets (ROAA), improved to 42.9% per cent and 4.1 % per cent in 2024 from 33.2% per cent and 3.9% per cent respectively in 2023.

This profitability translated to Earnings per share of 1,390k from 825k , the value of earnings per outstanding share of common stock of the company and an ndication of a company’s profitability that shows how much money a business makes for each share of its stock.

The positive impacts of the bank’s efficient profit machine are clearly visible on its stock.Though its stock has seen a 15% year-to-date (YtD) decline as of September 4, 2024, this is an improvement from the 19% dip recorded in August 2024. This recent recovery suggests that investor sentiment may be stabilizing, providing a potential opportunity for those considering buying the dip.

The significant improvement from August’s dip indicates a positive shift, which could signal a rebound in investor confidence. For context, the stock had previously surged by 108% YtD last year, highlighting its potential for substantial gains.

This recent downturn and subsequent partial recovery may reflect broader market adjustments rather than underlying issues with the company itself.

Looking ahead, Stanbic IBTC’s strong financial performance suggests it is positioned well to navigate the current challenges facing the banking sector. The company’s strong growth in earnings and pre-tax profits suggests it has solid fundamentals.

Analysts remain optimistic about Stanbic IBTC’s ability to leverage its strong performance to drive future growth, despite the sector’s recent underperformance.

According to the NGX’s brokers’ recommendations of September 2-6, 2024, the ratings vary: Bancorp Securities advises a “Hold,” Afriinvest suggests “Accumulate,” and Meristen provides a “Buy” rating. This range of recommendations reflects differing perspectives on the stock’s potential.

Overall, the ratings suggest a generally positive outlook for Stanbic IBTC, with analysts recognizing its strong financial performance and growth potential. The “Buy” rating from Meristen signifies high confidence in the stock’s future performance, while the “Accumulate” and “Hold” ratings reflect a more cautious but still favourable view.

Similarly, Stanbic IBTC’s first half of 2024 earnings release reinforced its strong position with a notable statement: “Stanbic IBTC retained its Fitch AAA (nga) rating, reaffirming our position as the only financial services provider in Nigeria with the highest rating from a global rating agency for over two decades.”

In addition to these strong ratings, it is essential to consider the stock’s trading activity and volatility. Over the past three months (June 5 – September 4, 2024),

Stanbic IBTC Holdings has been the 49th most traded stock on the Nigerian Stock Exchange, with a total volume of 98.9 million shares traded across 3,230 deals, valued at N5.25 billion. This trading volume indicates good investor interest and activity, which often correlates with increased volatility.

While volatility can create opportunities to buy at lower prices, it also introduces risk. However, the stock’s low beta of 0.362 may provide reassurance, as it suggests lower volatility compared to the overall market.

This indicates that the stock is less likely to experience large price swings relative to market movements. Consequently, the lower beta can be a sign of stability, potentially mitigating some of the inherent risks associated with the stock’s volatility.

Overall, given Stanbic IBTC’s strong financial fundamentals and recent signs of stabilization, the current dip might present a favourable buying opportunity.

The stock is currently trading below its 52-week high of N80, achieved on October 13, 2023, suggesting potential for future gains as market conditions improve.

This performance suggests strong investor confidence and positive sentiment towards the stock, primarily based on its financial performance.

One of the most popular valuation metrics is the price-to-earnings ratio (P/E), which measures the share price of a stock as a multiple of its earnings. The closer this figure is to one or below one, the cheaper the stock. Using Stanbic ’s current share price of N56.80 and its trailing twelve months earnings per share (EPS) of N16.27 the stock has a P/E ratio of 3.5x. This compares to the banking sector average of 13.9x.This lower P/E ratio suggests that the stock is undervalued compared to its peers, indicating that investors are paying less for each unit of its earnings relative to other banks. This could be seen as an opportunity for investors if they believe that Stanbic ’s earnings will continue to grow.

Another valuation metric is the price-to-earnings growth (PEG) ratio, which adjusts the P/E ratio by the stock’s earnings growth. Similarly, a PEG below 1x suggests that the stock is undervalued relative to its earnings growth potential and may offer attractive growth at a reasonable price, appealing to growth-oriented investors.Boosted by its recent performance, Stanbic has a PEG ratio of less than one, making it attractive for growth-hungry investors.

Additionally, the group’s strong capital assets appear to be reflected in its higher price-to-book ratio of 0.70, compared to the banking sector average of 0.63.This suggests that investors value each unit of Stanbic ’s book value more highly than that of its peers, possibly due to perceived higher asset quality or expectations of better future profitability. The expectation of better future profitability also aligns with its higher price-to-sales ratio of 1.5x compared to the sector average of 0.52x. Stanbic’s valuation metrics, including a low P/E ratio, a reasonable P/B ratio, and a relatively higher P/S ratio, combined with a very low PEG ratio, suggest that it might be an attractive investment, especially for those looking for growth opportunities at a reasonable price.

Besides valuation dynamics, Stanbic is known for its impressive dividend payouts.

For the period ending December 31, 2023, the group paid a final dividend of N2.20 per share to its shareholders, totalling N28.5 billion.

In September 2023, the group had distributed an interim dividend of N1.50, amounting to N19.4 billion, thus reaching a total dividend payout of N47.9 billion for 2023, a 6% rise from the N45.4 billion paid in 2022.

The stock currently has a dividend yield of 7.4% based on its current share price, and a dividend payout ratio 26 % of . Continuing this trend, the bank is expected to declare a better dividend for the financial year ended 2024 , enhancing its appeal as an investment, especially for income-oriented investors.

OPERATIONS.

The above inspiring returns would have been impossible or difficult without the management core competencies and unique resources deployed. Stanbic Bank has built its financial resources consistently over the years .However, asset volume is not enough to generate inspiring values to shareholders but the management of it; it has what it takes to deploy its resources for better value creation than its peers .

First , the deficit units which borrowed from the bank were equally kept satisfied ,benefiting from its capability to build its total assets aggressively over the years. In other words , the bank exploited its strong financial position as its Total assets increased by 41% to ₦7.26 trillion compared to its December 2023 total of ₦5.15 trillion.

To hit that amount it increased its Gross loans and advances by 18% to ₦2.48 trillion realative to its December 2023 amount at ₦2.09 trillion. It also boosted its deposit base.Customer deposits increased by 50% to ₦3.12 trillion (December 2023: ₦2.07 trillion).

To achieve the deposit growth , it had to adequately satisfy the surplus units from which it borrows with the best possible term in rates of interest and maturity structures and the maximum liquidity that enabled depositors to have the funds back when they wanted them , or as agreed .

Satisfying both the deficit and the surplus units not be farfetched. Although other sources exist , the main source of investible funds remains the bank deposits and loans and investments , the main outlets .Similarly , the spread or the difference between the rates at which the funds are borrowed and the rate at which they are invested or loaned out determines the fortune of the bank.

However, while boosting the loans and deposits are critical to its fortune ,the leadership must not be oblivious of the challenge of of risk management as bank management is coterminous with risk management , managing risks—the risk of mismatches between assets and liabilities and between borrowing and lending rates.

World class corporate leaders rarely toy with lending ,the core business of banking.All the technical training a banker receives is heavily geared towards lending .When it is said that one is a good or an astute banker ,what ,in fact , is meant is that one is a shrewd lender . –one who lends money safely and profitably.

In the first nine months of the financial year 2024 ,Stanbic-IBTC’s ,no doubt , engaged its unmatched savvy for managing the market risk ,an essentially interest-rate risk for loans and deposits, that is driven by the maturity structure of the loan book which is imperative for resolving the match (or mismatch) between the maturity of the loans against the maturity of the funding known as the interest-rate gap . .

But this was not without any threat from the highly inflationary environment. Although, its Net interest income which is sensitive to both credit and interest rate risks inched up phenomenally to ₦251.85 billion, up by above 100% from ₦120.50 billion in the corresponding period of 2023, its interest income was hindered from contributing optimally to the bottom-line simply because both interest rate and credit risks became hard nuts difficult for it to break.

While its interest income hit N425.78b from N184.59b , up by 130.7%, its
Interest expense skyrocketed to N173.93b from N64.09b at a faster pace of 169% threatening its bottom-line dangerously . For a better understanding of the rising cost scenario it took the bank N41 to get every N100 of its interest income in 2024 , it only took it N34 in the corresponding period of 2023 .

The excessive growth of its interest expenses was not the only potential spoiler, the bank became almost helpless in its battle of the credit risks as its impairment charges rose heavily to N59.38bi from approximately N10billion .

All the above potential spoilers notwithstanding, the leadership of Stanbic IBTC with deft application of its experience and professionalism boosted its Non-interest revenue by 50.8 percent to N214.01b from N141.96b with Net fee and commission revenue contributing more than half at N124.64b compared to N 79.53b in 2023 after fee and commission expenses of N9.74b and N5.07b of 2024 and 2023 respectively were deducted from its fee and commission revenue of N134.38b and N84.60b between 2024 and 2023 respectively.

Another rescue operation came from the trading segment as this income hit N80.25b from N59.74b . Consequently, its total operating income hit N465.86b compared to the N262.46b while operating expenses rose to N183.55b from N123.05b leading to a decline in its operating profit margin to .71.6% in 2024 compared to 78.9% in 2023 .The bank also witnessed a decline in its pretax profit margin to 34% from 38.9 just as its Net profit margin backtacked to 28% from 32.8% between the same period

The Regulatory Authorities

The fourth constituency adequately satisfied by Stanbic is the regulatory authorities with its capability to ensure no excessive risks were taken as it operated prudently and within stipulated regulatory requirements .
The Group continued to maintain an adequate level of capital during the quarter. The Group’s
total capital adequacy ratio closed at 15.7% (Bank:13.5%) which is higher than the 11%
minimum regulatory requirement.
The Group also maintained a strong and diversified funding base during the reporting period.
The Group’s liquidity ratio closed at 51.15%, above the 30% regulatory minimum requirement,

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