Abu Dhabi Islamic Bank
ADIB
ADIB
EFG-Hermes slashed its fair value for ADIB Egypt to EGP9.94 from EGP10.40 (with 15% upside) but reiterated a Buy recommendation.
“We reduce our earnings estimates in 2014-15 to incorporate a lower-than-expected non-interest income base in 2013 as well as tighter NIMs versus our previous forecasts. We now expect earnings CAGR of 49% in 2014-16, with provision reversals and loan growth remaining the key drivers of earnings growth, in our view,” EFG said.
According to EFG, ADIB Egypt is an attractive restructuring story, and it is expected to become the strongest lending franchise in Egypt’s Islamic space over the next few years. The EGP2 billion rights issue proposed by the BoD, and priced at par value of EGP10.0/share, above the current share price of EGP8.68, could cap share price performance in the short term, as, if the rights issue is not fully subscribed by minority shareholders, it will imply dilution of their stake from c40% to c20%. The rights issue will not inject a large amount of capital into the bank, as it mainly consists of transferring EGP1.8 billion already injected by UAE’s ADIB from the paid under capital reserve. Technically, however, if the share price remains below EGP10, the share price will adjust upwards to close to EGP10 post rights issue. The timeline for the rights remains uncertain, but EFG believes it could potentially be delayed until 2015. ADIB Egypt reported a net loss of EGP2 million in 4Q2013, below EFG’s EGP22 million net profit forecast, due to one-off operating expenses and other provisions. However, revenue grew by a solid 65% Y-o-Y. The loan book grew strongly by 24% Y-o-Y (+6% Q-o-Q), well above peers. The NPL ratio declined to 6.3% in 2013 from 44% in 2012, mainly due to write-offs at the fully provisioned legacy NPL book. NPL coverage stood at 58% in 2013, down from 95% in 2012; however including collaterals it is c100%.
“We reduce our earnings estimates in 2014-15 to incorporate a lower-than-expected non-interest income base in 2013 as well as tighter NIMs versus our previous forecasts. We now expect earnings CAGR of 49% in 2014-16, with provision reversals and loan growth remaining the key drivers of earnings growth, in our view,” EFG said.
According to EFG, ADIB Egypt is an attractive restructuring story, and it is expected to become the strongest lending franchise in Egypt’s Islamic space over the next few years. The EGP2 billion rights issue proposed by the BoD, and priced at par value of EGP10.0/share, above the current share price of EGP8.68, could cap share price performance in the short term, as, if the rights issue is not fully subscribed by minority shareholders, it will imply dilution of their stake from c40% to c20%. The rights issue will not inject a large amount of capital into the bank, as it mainly consists of transferring EGP1.8 billion already injected by UAE’s ADIB from the paid under capital reserve. Technically, however, if the share price remains below EGP10, the share price will adjust upwards to close to EGP10 post rights issue. The timeline for the rights remains uncertain, but EFG believes it could potentially be delayed until 2015. ADIB Egypt reported a net loss of EGP2 million in 4Q2013, below EFG’s EGP22 million net profit forecast, due to one-off operating expenses and other provisions. However, revenue grew by a solid 65% Y-o-Y. The loan book grew strongly by 24% Y-o-Y (+6% Q-o-Q), well above peers. The NPL ratio declined to 6.3% in 2013 from 44% in 2012, mainly due to write-offs at the fully provisioned legacy NPL book. NPL coverage stood at 58% in 2013, down from 95% in 2012; however including collaterals it is c100%.
Source:
Mubasher
