The Cooperative Bank of Kenya Ltd (NSE: COOP) announced their audited results for the period ended 31st December 2014 on 18th March 2015.
Recommendation: HOLD – KES 20.60 (Upside 0.5%)
14.1% Rise in Pre-Tax Excluding Exceptional Items; 0.4% Growth on One-Off Restructuring Cost: COOP announced 14.1% growth in pretax profits (before exceptional items) to KES 11.99 Billion whereas after accounting for exceptional items, pretax profits buoyed by a marginal 0.4% to KES 10.92 Billion. After-tax profits declined by 12.0% to KES 8.01 Billion as a higher tax bracket of 30% kicked in following lapse in the 20% tax bracket. Non-funded incomes span 16.7% to KES 10.81 Billion underpinned by a resolute 21.7% growth in fees & commissions to KES 8.71 Billion. Net interest income broadened 14.2% to KES 21.28 Billion on the back of a 30.9% leap in net loans & advances to KES 179.49 Billion.
Cost-to-Income Ratio at 59.0%; DPS Maintained at KES 0.50: Operating expenses grew 15.6% to KES 20.10 Billion as cost-to-income ratio improved marginally to 59.0% from last year’s margin of 59.5% borne from improved operational efficiencies. Despite decline in net earnings, management announced retention in first & final DPS at KES 0.50 netting a dividend yield of 2.4% vis-à-vis banking sector’s average of 2.82%. 20th May 2015 was provided as the counter’s book closure date for qualification in payment of its KES 0.50 DPS with settlement to be effected on or around 29th June 2015.
NPL Ratio at 4.3% as Bad Debt Provisions Rise by 51%: COOP’s loan book grew 30.9% to KES 179.49 Billion as customer deposits surged 24.1% to KES 217.70 Billion with loan-to-deposit ratio edging up to stand at 82.4% (FY14) from 78.1% (FY13). Borrowed funds stood at KES 18.27 Billion; 78.2% rise, owing to a blend in USD 148.6 Million in loan facilities raised in 2014 that ranged from: USD 60 Million – IFC, USD 52.6 Million – DEG and USD 36 Million –AFD. Additionally, EIB pulled in a further EUR 70 Million as these monies were able to placate the lender’s widening loan-to-deposit ratio and propel COOP’s efforts of scaling up its retail loan portfolio.
Gross NPL ratio remained unchanged at 4.3% with loan loss provisions increasing 51.1% to KES 1.18 Billion.
Outlook: Sufficient Capital Buffers: At 14.6% and 21.6% against the newly implemented minimum capital buffers for core capital and total capital of 10.5% and 14.5% respectively, COOP is sufficiently buffered with regards to Basel II regulation.
The share has reported a gain of 2.5% YTD (31/12/14 – Kes 20.0).