Earnings ReportFeatured

Sterling Bank Q1 Earnings: Negative Retained Earnings, Adjusted from N3.30bill to N552 Million

 

Coy: Sterling Bank Plc (STERLNBANK)
Rating: Hold
Current Market Price: N2.45
NPL RATIO (Q1-2019): 8.91%
Year High: N2.74
Year Low: N1.86
Fair Value: N3.80
By: Jeariogbe Tunde Segun (Equity Analyst)

 

Introduction

  • This report observed the financial performance statistics of Sterling Bank for the first three months of 2019, compared with similar financial in 2018 business cycle to establish growth and financial status.
  • We also observed few valuation metrics from its full year performance indices for the year ended 31st December, 2019.
  • Leading from the last quarter of 2018, the company Retained Earnings swerved to the negative territory up to the tune of N3.30 billion and it reduced to N552 million by the end of 2019 first quarter.
  • We rated the result quality low, since few restated figures differ largely from the original results. For example, the company posted Total Comprehensive Income reported for 2018 first quarter was N4.02 billion, meanwhile, same index was restated as N11.85 billion in 2019 first quarter results.
  • In our opinion, such large differences lowered the reliability of result, hence, result quality is rated poor
STERLING BANK
Bourse Nigerian Stock Exchange
Code Name STERLNBANK
Sector FINANCIAL SERVICES
Market Classification MAIN BOARD
Nature of Business Commercial Banking
Date of Incorporation November 25th 1960
Date Listed August 17th 1993
End of Accounting Year 31st December
Website www.sterling.ng.com
Registrar  
Auditor Ernst & Young
Share Price@Relsd (N)                                                    2.73
Earnings per Share                                                    0.11
Intrinsic Value(N)                                                  22.56
Share Outstanding 28,790,418,126
Market Capitalisation                                  78,597,841,484

 

Company figures

  • Gross Earnings for the quarter was estimated at N36.49 billion, this is 8.24% below the N39.76 billion posted at the end of 2018 first quarter
  • Interest Income stood at N30.79 billion as against the N31.08 billion of 2018
  • Interest Expenses on the other hand dipped by 18.30% to stand at N15.862 compared with N19.415 billion of 2018
  • Net Interest Income inched up by 3.61% to stand at N19.78 billion as against N19.09 billion
  • Operating Expenses stood at N15.08 billion, 3.90% above the previously reported N14.52 billon
  • Profit before Tax is currently estimated at N3.27 billion, marginal 3.09% above the N3.17 billion achieved in 2018 first quarter
  • Having considered the N33.00 million Tax Expenses, estimated profit for the year stood at N3.24 billion slightly above the N3.10 billion posted at the end of 2018 first quarter business cycle
STERLING BANK
Statement of Comprehensive Income
  2019 2018 %CHG
GROSS EARNINGS                  36,491,000,000               39,766,000,000 8.24
INTEREST INCOME                  30,791,000,000               31,804,000,000 3.19
INTEREST EXPENSES                  15,862,000,000               19,415,000,000 18.30
NET INTEREST INCOME                  19,786,000,000               19,097,000,000 3.61
OPEX                  15,088,000,000               14,521,000,000 3.90
DEPRECIATION                     1,425,000,000                 1,401,000,000 1.71
PBT                     3,273,000,000                 3,175,000,000 3.09
TAX                           33,000,000                       75,000,000 56.00
PAT                     3,240,000,000                 3,100,000,000 4.52
TOTAL COMP INCOME                  10,223,000,000               11,856,000,000 13.77
Statement of Financial Position
Total Assets            1,133,407,000,000         1,049,597,000,000 7.98
Total Liabilities            1,025,383,000,000            955,623,000,000 7.30
Net Assets                108,024,000,000               93,974,000,000 14.95
Retained Earnings                      (552,000,000)               10,821,000,000 105.10
Total Deposits                793,064,000,000            731,322,000,000 8.44
Total Loans and Advances                667,001,000,000            657,978,000,000 1.37

 

  • Total Assets valuation improved by marginal 7.98% to N1.13 trillion compared to the N1.04 trillion assets valuation released at the end of 2018 first quarter business
  • In similar trend, Total Liabilities grew by 7.30% to stand at N1.02 trillion against the N955.62 billion reported in 2018
  • Net Assets improved to N108.02 billion against N93.94 billion in 2018, difference between the two figures is same as a drop of 14.94%
  • As against the positive N10.82 billion Retained Earnings posted in 2018 first quarter, the indices was negative (N552.00 million) at the end of 2019 first quarter
  • Total Deposits achieved through the first three months of 2019 grew marginally by 8.44% to N793.06 billion compared to N731.32 billion in 2018 first quarter
  • Total Loans and Advances inched up by 1.37% to stand at N667.00 billion as against the N657.97 billion in 2018

Financial Strength/Solvency Ratios

  • Debt Ratio which compared both Total Assets to Total Liabilities stood at 0.9x or 90%, implying that the Total Liabilities is 90% of Total Assets. Please understand that Total Liabilities is inclusive of Total Deposits for the period
  • Total Debt to Equity for the quarter stood at 9.49x, same as 6.66% below the 10.17x estimated in 2018. This implies that the company used Debt equivalent to 9.49 times of its equity through the period (note debt used is total liabilities and is inclusive of total deposits for the period)
  • Equity Ratio which compared Equity to Total Assets stood at 0.10x as against 0.09x implying that the reported Equity at the end of the period is 10% of Sterling Bank’s Total Assets.
  • Estimated Beta value for Sterling Bank as at the time this report was compiled stood at 1.06 this stood above market beta though it’s below the industrial average
Financial Strength/Solvency Ratio
TICKERS 2019 2018 %CHG
Debt Ratio                                        0.90                                    0.91 0.63
Total Debt to Equity Ratio (MRQ)                                        9.49                                  10.17 6.66
Equity Ratio                                        0.10                                    0.09 6.45
TICKERS STERLING BANK Industrial Average %CHG
Beta Value                                        1.06                                    1.50 29.33

 

Profitability Ratios

  • EBITDA margin estimated for the period stood at 58.22%, 12.53% above the 51.74% estimated from the corresponding quarters’ numbers
  • Pre-Tax Margin improved by 12.34% to 8.97% against the 7.98% estimated at the end of 2018 first quarter
  • Interest Expenses to Gross Earnings dipped by 10.97% to 43.47% against the previously estimated 48.82%
  • Return on Average Equity through the first three months of 2019 was 3.00% against 3.30% in 2018
  • See below table for detailed profitability ratios and comparison
PROFITABILITY RATIOS
TICKERS 2019 2018 %CHG
EBITDA MARGIN 58.22% 51.74% 12.53
PRE-TAX MARGIN 8.97% 7.98% 12.34
EFFECTIVE TAX RATE 1.01% 2.36% 57.32
IE TO GE 43.47% 48.82% 10.97
ROAE 3.00% 3.30% 9.08
ROAA 0.29% 0.30% 3.21

 

Efficiency Ratios

  • Operating Expenses figure posted at the end of the period is estimated to be 41.35% of the estimated Gross Earning, this is higher than the 36.52% achieved in 2018 first quarter financials. Please note that this implies increased rate of expenses
  • Gross Earnings estimated from the bank financials is same as 3.22% of the Total Assets value posted for the period under analysis
  • Total Loan and Advances posted for the quarter is 84.10% of Total Deposit, this is a lower when compared to 89.97% estimate of 2018 first quarter. In our opinion, this is on the high side
EFFICIENCY RATIOS
  2019 2018  
OPEX TO GE 41.35% 36.52% 13.23
GE TO TA 3.22% 3.79% 15.02
LDR 84.10% 89.97% 6.52

 

Investment/Valuation Ratios

  • The profit earned per each units of Sterling Bank’s shares is estimated at N0.11 approximately same as comparable period’s
  • Total Comprehensive Income is estimated at N0.36, this is 13.77% below the N0.41 TCI/share achieved in 2018.
  • P/E-Ratio grew to 6.06x from 3.71x, this is implying improved investors’ sentiments for the shares of Sterling Bank
  • The said earnings per share is a yield of 4.12% of the price of each units of Sterling Bank shares on the floor of the exchange on the day the result was unveiled to the investing public through the exchange
  • Estimated value of each units of Sterling Bank shares in its book is N3.75, this is 14.95% improvement over the previous estimate of N3.26
  • Confirming the academic under-priced stand of Sterling Bank shares on the floor of the exchange is the Price to Book Value estimate that stood below unity
Investment/Valuation Ratios
Tickers 2019 2018 %Chg
EPS 0.11 0.11 4.52
TCIP/SHARE 0.36 0.41 13.77
P/E-Ratio 6.06 3.71 63.25
Earnings Yield 4.12% 6.73% 38.75
BV/Share 3.75 3.26 14.95
PBV 0.73 0.49 48.43
CAPEX 0.10 0.22 53.24

 

Valuation

While attempting to rightly value each unit of Sterling Bank’s Shares on the floor of the exchange, we got more comfortable with Free Cash Flow to Equity (FCFE) valuation approach. Thus, working mainly with metrics from the full year performance indices, we placed the shares at N3.80, and thus rated it as Hold

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Earnings ReportFeatured

Sterling Bank Q1 Earnings: Negative Retained Earnings, Adjusted from N3.30bill to N552 Million

 

Coy: Sterling Bank Plc (STERLNBANK)
Rating: Hold
Current Market Price: N2.45
NPL RATIO (Q1-2019): 8.91%
Year High: N2.74
Year Low: N1.86
Fair Value: N3.80
By: Jeariogbe Tunde Segun (Equity Analyst)

 

Introduction

  • This report observed the financial performance statistics of Sterling Bank for the first three months of 2019, compared with similar financial in 2018 business cycle to establish growth and financial status.
  • We also observed few valuation metrics from its full year performance indices for the year ended 31st December, 2019.
  • Leading from the last quarter of 2018, the company Retained Earnings swerved to the negative territory up to the tune of N3.30 billion and it reduced to N552 million by the end of 2019 first quarter.
  • We rated the result quality low, since few restated figures differ largely from the original results. For example, the company posted Total Comprehensive Income reported for 2018 first quarter was N4.02 billion, meanwhile, same index was restated as N11.85 billion in 2019 first quarter results.
  • In our opinion, such large differences lowered the reliability of result, hence, result quality is rated poor
STERLING BANK
Bourse Nigerian Stock Exchange
Code Name STERLNBANK
Sector FINANCIAL SERVICES
Market Classification MAIN BOARD
Nature of Business Commercial Banking
Date of Incorporation November 25th 1960
Date Listed August 17th 1993
End of Accounting Year 31st December
Website www.sterling.ng.com
Registrar  
Auditor Ernst & Young
Share Price@Relsd (N)                                                    2.73
Earnings per Share                                                    0.11
Intrinsic Value(N)                                                  22.56
Share Outstanding 28,790,418,126
Market Capitalisation                                  78,597,841,484

 

Company figures

  • Gross Earnings for the quarter was estimated at N36.49 billion, this is 8.24% below the N39.76 billion posted at the end of 2018 first quarter
  • Interest Income stood at N30.79 billion as against the N31.08 billion of 2018
  • Interest Expenses on the other hand dipped by 18.30% to stand at N15.862 compared with N19.415 billion of 2018
  • Net Interest Income inched up by 3.61% to stand at N19.78 billion as against N19.09 billion
  • Operating Expenses stood at N15.08 billion, 3.90% above the previously reported N14.52 billon
  • Profit before Tax is currently estimated at N3.27 billion, marginal 3.09% above the N3.17 billion achieved in 2018 first quarter
  • Having considered the N33.00 million Tax Expenses, estimated profit for the year stood at N3.24 billion slightly above the N3.10 billion posted at the end of 2018 first quarter business cycle
STERLING BANK
Statement of Comprehensive Income
  2019 2018 %CHG
GROSS EARNINGS                  36,491,000,000               39,766,000,000 8.24
INTEREST INCOME                  30,791,000,000               31,804,000,000 3.19
INTEREST EXPENSES                  15,862,000,000               19,415,000,000 18.30
NET INTEREST INCOME                  19,786,000,000               19,097,000,000 3.61
OPEX                  15,088,000,000               14,521,000,000 3.90
DEPRECIATION                     1,425,000,000                 1,401,000,000 1.71
PBT                     3,273,000,000                 3,175,000,000 3.09
TAX                           33,000,000                       75,000,000 56.00
PAT                     3,240,000,000                 3,100,000,000 4.52
TOTAL COMP INCOME                  10,223,000,000               11,856,000,000 13.77
Statement of Financial Position
Total Assets            1,133,407,000,000         1,049,597,000,000 7.98
Total Liabilities            1,025,383,000,000            955,623,000,000 7.30
Net Assets                108,024,000,000               93,974,000,000 14.95
Retained Earnings                      (552,000,000)               10,821,000,000 105.10
Total Deposits                793,064,000,000            731,322,000,000 8.44
Total Loans and Advances                667,001,000,000            657,978,000,000 1.37

 

  • Total Assets valuation improved by marginal 7.98% to N1.13 trillion compared to the N1.04 trillion assets valuation released at the end of 2018 first quarter business
  • In similar trend, Total Liabilities grew by 7.30% to stand at N1.02 trillion against the N955.62 billion reported in 2018
  • Net Assets improved to N108.02 billion against N93.94 billion in 2018, difference between the two figures is same as a drop of 14.94%
  • As against the positive N10.82 billion Retained Earnings posted in 2018 first quarter, the indices was negative (N552.00 million) at the end of 2019 first quarter
  • Total Deposits achieved through the first three months of 2019 grew marginally by 8.44% to N793.06 billion compared to N731.32 billion in 2018 first quarter
  • Total Loans and Advances inched up by 1.37% to stand at N667.00 billion as against the N657.97 billion in 2018

Financial Strength/Solvency Ratios

  • Debt Ratio which compared both Total Assets to Total Liabilities stood at 0.9x or 90%, implying that the Total Liabilities is 90% of Total Assets. Please understand that Total Liabilities is inclusive of Total Deposits for the period
  • Total Debt to Equity for the quarter stood at 9.49x, same as 6.66% below the 10.17x estimated in 2018. This implies that the company used Debt equivalent to 9.49 times of its equity through the period (note debt used is total liabilities and is inclusive of total deposits for the period)
  • Equity Ratio which compared Equity to Total Assets stood at 0.10x as against 0.09x implying that the reported Equity at the end of the period is 10% of Sterling Bank’s Total Assets.
  • Estimated Beta value for Sterling Bank as at the time this report was compiled stood at 1.06 this stood above market beta though it’s below the industrial average
Financial Strength/Solvency Ratio
TICKERS 2019 2018 %CHG
Debt Ratio                                        0.90                                    0.91 0.63
Total Debt to Equity Ratio (MRQ)                                        9.49                                  10.17 6.66
Equity Ratio                                        0.10                                    0.09 6.45
TICKERS STERLING BANK Industrial Average %CHG
Beta Value                                        1.06                                    1.50 29.33

 

Profitability Ratios

  • EBITDA margin estimated for the period stood at 58.22%, 12.53% above the 51.74% estimated from the corresponding quarters’ numbers
  • Pre-Tax Margin improved by 12.34% to 8.97% against the 7.98% estimated at the end of 2018 first quarter
  • Interest Expenses to Gross Earnings dipped by 10.97% to 43.47% against the previously estimated 48.82%
  • Return on Average Equity through the first three months of 2019 was 3.00% against 3.30% in 2018
  • See below table for detailed profitability ratios and comparison
PROFITABILITY RATIOS
TICKERS 2019 2018 %CHG
EBITDA MARGIN 58.22% 51.74% 12.53
PRE-TAX MARGIN 8.97% 7.98% 12.34
EFFECTIVE TAX RATE 1.01% 2.36% 57.32
IE TO GE 43.47% 48.82% 10.97
ROAE 3.00% 3.30% 9.08
ROAA 0.29% 0.30% 3.21

 

Efficiency Ratios

  • Operating Expenses figure posted at the end of the period is estimated to be 41.35% of the estimated Gross Earning, this is higher than the 36.52% achieved in 2018 first quarter financials. Please note that this implies increased rate of expenses
  • Gross Earnings estimated from the bank financials is same as 3.22% of the Total Assets value posted for the period under analysis
  • Total Loan and Advances posted for the quarter is 84.10% of Total Deposit, this is a lower when compared to 89.97% estimate of 2018 first quarter. In our opinion, this is on the high side
EFFICIENCY RATIOS
  2019 2018  
OPEX TO GE 41.35% 36.52% 13.23
GE TO TA 3.22% 3.79% 15.02
LDR 84.10% 89.97% 6.52

 

Investment/Valuation Ratios

  • The profit earned per each units of Sterling Bank’s shares is estimated at N0.11 approximately same as comparable period’s
  • Total Comprehensive Income is estimated at N0.36, this is 13.77% below the N0.41 TCI/share achieved in 2018.
  • P/E-Ratio grew to 6.06x from 3.71x, this is implying improved investors’ sentiments for the shares of Sterling Bank
  • The said earnings per share is a yield of 4.12% of the price of each units of Sterling Bank shares on the floor of the exchange on the day the result was unveiled to the investing public through the exchange
  • Estimated value of each units of Sterling Bank shares in its book is N3.75, this is 14.95% improvement over the previous estimate of N3.26
  • Confirming the academic under-priced stand of Sterling Bank shares on the floor of the exchange is the Price to Book Value estimate that stood below unity
Investment/Valuation Ratios
Tickers 2019 2018 %Chg
EPS 0.11 0.11 4.52
TCIP/SHARE 0.36 0.41 13.77
P/E-Ratio 6.06 3.71 63.25
Earnings Yield 4.12% 6.73% 38.75
BV/Share 3.75 3.26 14.95
PBV 0.73 0.49 48.43
CAPEX 0.10 0.22 53.24

 

Valuation

While attempting to rightly value each unit of Sterling Bank’s Shares on the floor of the exchange, we got more comfortable with Free Cash Flow to Equity (FCFE) valuation approach. Thus, working mainly with metrics from the full year performance indices, we placed the shares at N3.80, and thus rated it as Hold

Comment here