Azee Securities (Pvt) Ltd.
Allied Bank Limited (ABL) announced its 9MCY15 results. Bank posted profit after taxation of Rs 11.86 billion which translates into EPS of Rs 10.36 in 9MCY15 as compared to Rs 11.56 billion (EPS: Rs 10.09) in the same period last year, on unconsolidated basis. The Board announced third interim cash dividend of Rs. 1.75 per share, which made total cash dividend for nine months period of Rs. 5.25 per share.
Net interest income jumped by 35%
Other income not that supportive
Fee and commission income along with income from foreign currencies exchange increased by 14% and 98% respectively, during the period under review. However, due to lower capital gains that were realized during the period, the non interest income squeezed by 22% YoY to grasp Rs 7.8 billion mark as against Rs 10.06 billion that it owned in 9MCY14.
Increased tax charges cuddled profit
The bank announced Profit before tax of Rs 20.51 billion reflecting an upsurge of 19%; however due to revised Finance Act, the bank born additional tax charges of Rs 1,460 million for the year ended December 31, 2014 duly accounted for in the previous quarter. Resultantly, a massive hike of 52% is witnessed on year-over-year comparison where the payment increased from Rs 5,680 in 9MCY14 to Rs 8,652 in 9MCY15.
Provisions under control through prudent approach
Despite taking a hefty provision of Rs 685 million against BYCO Petroleum Pakistan Limited exposure in the first quarter of 2015, the net provision charges during the nine months reduced to Rs 474 million as against net reversal of Rs 44.4 million in the corresponding period of 2014.
Increase in deposit base and investment portfolio
ABL’s deposits increased by 5.7% in nine months to Rs 706 billion as at September 30, 2015. Net advances reduced marginally by Rs 7.4 billion to close at Rs 298.7 billion. In the absence of quality credit off-take the excess liquidity was shifted towards investments, which increased by 27.3% as compared to the December 2014 to reach Rs 545.8 billion. ROE and ROA during the period stood at 24.37% and 1.76% respectively.
Recommendation
Fiscal consolidation, lower inflation and improving external position are reflecting economic progress. However, large scale manufacturing concerns remained linked to energy crisis. Interest margins are squeezed due to lower discount rates that affected banking profitability in short to medium term. The scrip is currently reading at Rs 97/share posing an upside potential of 19% to our June 16 target price of Rs 115/share.