NBK Capital said in a report it raise its fair value estimate for Commercial International Bank (CIB) by 43% to EGP 58.0 per share, reflecting stickier than previously expected margins, a likely major pick up in the bank’s corporate lending, and a declining cost of risk starting in 2015.
“The new fair value reflects an upside potential of 15%; therefore, we have a ‘Buy’ recommendation on the stock,” the report issuer said.
“Given the slightly improved macroeconomic outlook and favorable interest rate environment, we anticipate a) strong growth in lending at around 22% per annum for 2015–2016, but growth might be weak in 3Q2014 due to seasonality; b) NIM to remain elevated in the medium term (average of 4.8% for 2014-2016 versus 4.3% in 2011-2013); c) strong growth in fee income (+20% for 2014-2016; d) decrease in the cost of risk to around 122 bps in 2016 from 207 bps in 2013. Overall, we expect 70 bps increase in ROE in 2015 and an average EPS growth of 23% for 2014-2016, by far the highest in our coverage universe,” stated NBK Capital.
Price performance of most of the banking stocks was similar YTD (+56% for CIB versus +53% for the Egypt banking index) on the back of the favorable developments seen this year, such as political stability, improved corporate sentiment, interest rate increase, and early signs of capex pickup.
“While we acknowledge that, historically, CIB commands a well-deserved premium to its banking peers, we expect the premium to expand as we believe that: a) while the higher interest rate environment in Egypt is generally supportive for banks’ NIMs, CIB has an added advantage; b) while the recovery in capex and loan growth is positive for all banks, we expect that CIB to gain market share when capex increases; and c) while subsiding risk in asset quality is positive for all banks, CIB’s excess provisions are, relatively higher than peers, and hence, the bank has more potential to benefit from lower provisioning going forward,” said the report issuer