We recommend a hold rating on the CIB stock with a target price of EGP 32.14 using a Dividend Discount Model, despite the company’s positive financial performance in Q3 2015. The bank’s financial results have continued to impress, but the fact that the bank’s operations are concentrated in Egypt alone means that the bank is not hedged from local macroeconomic headwinds, including the shaky political setup.
Moreover, we believe that the bank’s high exposure to sovereign bonds keeps it at the risk of the economic situation. The high interest rate environment in Egypt now entices banks to hold more government bonds, as 5Y T-Bills yield an average interest-rate of 13.59%, and hinders private investments and, consequently, private loans, noting that the bank’s major segment is corporate clients.
The LTD ratio maintained by CIB and other Egyptian banks remains low, even with respect to similar countries in developing economies. This can be traced to the purchasing of government debt by banks, but we do not expect it to decrease much in the coming years, given the persistence of high interest rates in Egypt, and the absence of economic and foreign financial support for the country.
On the positive side, CIB will distribute an additional dividend share during the fourth quarter for each 4 common shares held, resulting in a new paid-up capital of $1.46B (EGP 11.47B). CIB’s payout ratio has generally been high and consistent over the years, with an average ratio of 34.94% since 2012. However, the current dividend yield, which stands at 3.02%, currently lags the regional median yield of 4.05%. Moreover, the bank’s current P/B ratio shows an overvalued stock compared to the region.
Over the first 9 months of 2015, CIB registered a Net Income of $457.64M (EGP 3.58B), equivalent to a significant 32.28% upturn in performance compared to the same period in 2014. CIB’s balance sheet continued its aggressive growth in Q3 2015, driven by the 26.52% year-to-date expansion of CIB’s deposits by customers by September 2015 to $19.71B (EGP 154.32B). The bank’s loan portfolio also demonstrated a marked growth of 17.51% over the same period, ending Q3 at $7.31B (EGP 57.21B).
For the full report, kindly click here: CIB Update Q3 2015