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Nations Trust Bank PLC
We are upgrading our recommendation to a BUY from hold for NTB, with
forward earnings multiple coming at 9.09 (2012F) and 1.66 PBR. However,
intensifying competition coupled with pressure on NIM lead to a cut in
our forecast.
Recommendation History
We made a SELL call for the entire banking sector on 24th of November 2010 when the
share was trading at Rs. 83.10. In that report we downgraded NTB to SELL. Since that
point NTB has fallen by 22% in absolute terms and by 30% relative to the ASPI.
Net Interest Income (growth -7% QoQ): Net interest income declined during the
quarter as a result of reduction in yield on assets outpacing the fall in the cost of
funds. Despite the modest growth in volume, NIM came down sharply during the
quarter to a meagre 4.57% (4Q2010 – 5.42%), relative to the sector.
Non Interest Income (growth 21% QoQ): The bank posted a healthy growth in non
lending activities, which rooted from capital market operations & increased
trade and credit card commissions. However, the Central bank imposition of a
cap on bank guarantees in April 2011, will limit the opportunity for further
income growth from capital market activities.
Profit before Provisions (growth 27% QoQ): Stable Operating income together
with a substantial drop in Operating expenses (however on a YoY basis operating
expenses increased by 17% which was in line with the banks expansion drive) has
contributed towards a sizable increase in Profit before Provisions for the quarter.
We are upgrading our recommendation to a BUY from hold for NTB, with
forward earnings multiple coming at 9.09 (2012F) and 1.66 PBR. However,
intensifying competition coupled with pressure on NIM lead to a cut in
our forecast.
Recommendation History
We made a SELL call for the entire banking sector on 24th of November 2010 when the
share was trading at Rs. 83.10. In that report we downgraded NTB to SELL. Since that
point NTB has fallen by 22% in absolute terms and by 30% relative to the ASPI.
Net Interest Income (growth -7% QoQ): Net interest income declined during the
quarter as a result of reduction in yield on assets outpacing the fall in the cost of
funds. Despite the modest growth in volume, NIM came down sharply during the
quarter to a meagre 4.57% (4Q2010 – 5.42%), relative to the sector.
Non Interest Income (growth 21% QoQ): The bank posted a healthy growth in non
lending activities, which rooted from capital market operations & increased
trade and credit card commissions. However, the Central bank imposition of a
cap on bank guarantees in April 2011, will limit the opportunity for further
income growth from capital market activities.
Profit before Provisions (growth 27% QoQ): Stable Operating income together
with a substantial drop in Operating expenses (however on a YoY basis operating
expenses increased by 17% which was in line with the banks expansion drive) has
contributed towards a sizable increase in Profit before Provisions for the quarter.
