Analysts See More Goodies in Barclays Bank after 6.2% Profit Growth

Barclays Bank of Kenya (NSE: BBK) announced a 6.2 percent on a year-to-year growth in the first half of 2018 leading to earnings per share (EPS) to 0.69 shillings.

The performance was solid across income lines, with a net interest income (NII) growth of 4.0 percent and non-interest revenue (NIR) growth of 6.9 percent.

The uptick in non-performing loan (NPL) book continues being a concern, with a record high NPL ratio of 7.7 percent in 2018 from 7.2 percent in the first half of 2018, against a 3-year average of 5.4 percent.

A dividend of 0.20 shillings was recommended to shareholders on the register as of 7th September 2018 with economic analysts seeing a better future for the lender.

Despite trading at sector average multiples (P/B of 1.5x), Barclays Bank Kenya continues offering a good dividend yield at 8.1 percent against sector’s 4.7 percent.

During the period under review, there was a solid year-to-year NIR growth of 6.9 percent which was supported by 47.1 percent growth in fee and commission income and 10.9 percent growth in forex income. NIR contribution rose to 30.0 percent from 27.9 percent in the 2017 financial year.

In FY17 NIR declined 5.0 percent on a year-to-year basis mainly due to the reclassification of some items of fee and commission income to interest income.

Though the NIR growth is laudable, analysts say that they are not likely to see NIR contribution vary significantly from the current 30 percent levels.

During the six-month period, there was a strong balance sheet growth attributed to customer deposits which grew 12.2 percent q/q (14.9% y/y) to 216.8 billion shillings remarkable against BBK’s historical trends.

This could be due to its recent aggressive focus on the retail and SME banking market. Gladly, the huge deposit growth has barely moved the cost of funding (stable at 2.9% since 3Q17).

“We expect to see a more aggressive BBK under the new Absa brand, which gives BBK a simpler and more efficient corporate profile,” said analysts from Genghis Capital.