Morning Market Brief 15th November 2018
KCB Group Plc 3Q18 Results
KCB Group Plc (NSE: KCB) announced better-than-expected 3Q18 numbers. PAT grew 19.7% y/y against expected 7.9% y/y growth. This was due to faster-than-expected growth in Net interest income (NII) at 1.8% y/y against expected -0.8 y/y growth. The faster growth in NII was backed by the aggressive loan book during the quarter (+3.8% y/y, 3.3%q/q) against 2.1% y/y (1.6% q/q) projections. Unlike its large peer, Equity Bank, NIM ticked up by 10bps q/q (20bps y/y) to 8.9%, above the expected 8.8%. Non interest revenue (NIR) growth was also above expectations (+2.6% y/y) contributing 33.1% to total income against expected NIR contribution of 32%. Cost to income (CTI) fell to 49.5%, the best in the last 5 years, mainly due to 7.4% y/y cut in staff costs. NPL ratio improved admirably by 80bps to 7.6%, a 3-year low as gross NPLs dropped 7.6% q/q.
We are delighted by the improvement in key performance ratios; NIM, CTI and NPL ratio. However, the 42.6% y/y cut in loan loss charges still lacks clarity despite stringent IFRS 9 provision standards, especially that coverage levels at about 60.3% are below the average 64.8% for the bank.
Against the numbers and current market prices, we maintain our BUY recommendation on KCB at a target price of KES 55.99.
The Co-operative Bank of Kenya Ltd 3Q18 Results
The Co-operative Bank of Kenya (NSE: COOP) announced a 8.2% y/y growth in 3Q18 results, ahead of growth expectations of 6.8% y/y. Profitability was boosted by 5% y/y growth in net interest income (NII) and 4% y/y growth in non interest revenue (NIR). Key performance metrics except net interest margin (NIM) were stable q/q; cost to income at 55.1% better than the expected 56.5%, NPL ratio at 10.8% from 10.9% in 1H18, still higher than expected 10.5%. NIM slumped to 8.3%, a historical low, from 8.6% in 1H18. Loan provisions declined 50% boosting the bottom line performance else operating income before provisions fell 2.6% y/y.
Against 3Q18 performance and current prices, we maintain our BUY recommendation on COOP at a target price of KES 17.05.
Market activity remains subdued as local investors take a wait-and-see approach. Activity is concentrated on the key counters; Safaricom, Equity and KCB, though we expect prices to remain stable as the activity is not enough to move prices.On Safaricom, we see support at KES 24.0 with less aggressive sell-offs in the market. As banks continue to announce their 3Q18 results, we might see an increase in trading activity in the banking counters.