NTB - Rs.90 - 2Q2014 Results Summary - 12 September 2014
2Q2014 EPS of Rs.2.6 (up 27% YoY), above our expectations, supported by higher margin and non-interest income, offsetting sluggish credit growth
§ CASA ratio improved to best since 3Q2011, however, portfolio quality (measured by NPA) deteriorated to worst since 2Q2011
Outlook & Valuations
§ Uncertainty related to promoter dilution continues, amid likely participation of banks in ongoing sector consolidation initiatives
§ With the CBSL’s recent encouragement of consolidation within the banking sector, we believe there is a reasonable probability of NTB acquiring a small finance company, with likely limited impact on its balance sheet and financials.
§ We also believe that NTB may continue to seek acquisition and/or merger options within the LCB space, especially given the ambition of its main shareholder JKH. NTB remains one of the more attractive mid-sized banks, and we do not rule out a takeover/merger in the long term
§ Trades at a discount to sector on PERs of 8.2X in 2014E (however in line with sector on PBVs - 1.5X) and 7.0X in 2015E (PBV – 1.3X), offering sector high ROE’s of ~20% for both years.
§ We believe that the share may find favour among strategic investors in the medium term. Further, the share would be appealing for investors seeking exposure into banking sector, given NTB’s superior ROEs, coupled with potential for growth