Is It Worth Buying Stanbic IBTC Despite Higher Prices?

stanbic IBTC bank stock

Among the three banks trading above N20 per share and have released their 2018 full year’s result, Stanbic IBTC bags the most impressive bottom line figure having recorded a significant increase in profit after tax and EPS to N74 billion (from N48b) and N7.04 (from N4.6), representing a high double-digit growth of 54% and 53% respectively. Not only is the bank doing a great job of maintaining its market share in its core investment banking business, and generating a better than expected non-interest revenue in a tough environment but also growing shareholders’ wealth.

The question now is, How is Stanbic IBTC able to grow her earnings faster? 

Let us look at the performance of the bank in the last 4 years, 2015 – 2018 period.

Source: Financial Statement 2015 and 2016

Source: Financial Statement 2017 and 2018


The bank’s gross earnings grew from N140b in 2015 to N222b representing 12.22% average annual growth in 4 years. This is largely driven by non-interest revenue which went up by an average of 16.17% year on year (from N56b in the last 4 years to N102b).

Interest income is also growing by an average of 16.05%.

We know that banks make money by lending at a higher rate than what they pay to depositors. Banks collect interest (the money a borrower pays for the ability to use the bank’s money) on loans and pay interest (the money a bank pays depositors for allowing their money to be held). The difference between these two rates is known as net interest margin (or ‘the spread’) and is how traditional banks make money.

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Stanbic IBTC net interest margin, a measure of the bank’s profit on its interest-generating assets, is still well above the industry standard of 4%, 8% (2015), 9.3% (2016), 11.9% (2017) and 9.2% (2018). Based on its 4 years of history, it has an average margin of 9.6%.

Operating expenses

When assessing the profitability of a growing bank, you have to factor in efficiency ratio, a metric that helps you check the bank is managing its operating cost in relation to its net revenue (interest income plus non-interest income).

Efficiency Ratio = Noninterest Expense / Net Revenue x 100

Stanbic IBTC operating expenses has been on a steady growth as it shoots up by an average of 11.26% year on year, still below the latest average inflation figure of 11.3%. Efficiency ratio between 2015 and 2018 hovers around 54.5%, well below the 60% threshold.

This means that an average of 54.5k was spent on every Naira in revenue Stanbic IBTC generated in the last 4 years.

Profit After Tax, EPS & Return on Equity

Stanbic IBTC profit after tax has maintained an upward trajectory to hit N74b as reported in its latest result. The bottom line growth in the latest 5 years ranks among the best among listed banking stocks, 42.5% on a compounded average. EPS also followed the same path with an average growth of 45.99% within the same period.

The bank is also able to utilize shareholders’ fund to generate higher return year on year as it grew its Return on Equity from 14.6%, 20.2%, 26.1% to 31% in 2015, 2016, 2017 and 2018 with its average return for 4 years now at 22.97%.

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Calculating ROE simply requires dividing net income by total shareholder’s equity and multiplying by 100.

ROE = Net Income/Total Shareholder’s Equity x 100

Customer Confidence

Customers’ confidence, as measured by customers’ deposit, in Stanbic IBTC isn’t bad too. In its 2018 result, it reported an increase of 7.1% to N807billion (from N753b in the previous comparable period) while on average the bank has grown customer’s deposit by 13.11%.

How is how the bank utilized customers’ deposit in the last 4 years?

  • The bank invested 27.62% of the deposit generated in 2015 while 64.5% was advanced to customers.
  • In 2016, investment was 41.1% while 59.9% was advanced to customers as a loan.
  • In 2017, the bank invested 38.8% while 46.8% was advanced to customers.
  • In 2018, 41.3% was invested while 45.5% was advanced to customers.

Total Assets

The bank, in its latest result, also grew its total asset by 23% to N1.6tr from N1.3tr while on average, it has maintained an asset growth of 15.47%, from N937billion reported in 2015.

We use the loan/asset ratio to gauge the bank’s exposure to loan risk. Going by this ratio (40%, 36.6%, 27.5%, 26.5% in 2015, 2016, 2017 and 2018 respectively.), the bank has reduced its exposure to loan risk and increased combined investment in Treasury, FGN bonds, unlisted equity securities and mutual funds (which grew by 25.35% on average, from N162 billion to N400b).


While the price to earnings ratio is a helpful metric for understanding how cheap a banking stock is, I use the PEG ratio (price to earnings and growth rate), a valuation tool that factors in the average growth rate of the stock to ascertain growth potential. When you compare the PE ratio (using a share price of N48 and recent EPS of N7.04) of 6.8 to the bank’s average earnings growth of 45.99%, you will see why it’s a cheap growth stock. A PEG ratio less than 1 means the stock is cheap relative to its future value.

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See – How to Analyse Banking Stocks

stanbic IBTC bank stock.jpg

Is Now a Good Time to Buy Stanbic IBTC Stocks?

The stock has gained 220%, 162.44% and -1.03% in the last 3, 2 and 1 year with YTD return at 0.10%, you may want to know if N48 is a good price to buy the stock. Using an average earnings growth of 45%, the bank should report N10.2 in its 2019 FYE result, supported by a stronger non-interest income and improved asset quality (better impairment writeback) and if you discount expected earnings by 19% for 5 years, fair value prints at N54.94, close to its 52-weeks high of N53.25 and 14.4% upside potential.

By averaging down below the N48 entry price, you increase your chance of earning 15 – 16% in 1 year on a lower average cost.

Disclaimer: The analysis shared here is for information purpose, you are advised to do your due diligence or consult your advisor.

What do you think?

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tochukwu ezeukwu
tochukwu ezeukwu
4 years ago

Hi Oge. Great work you do here. Plus your analysis of Stanbic is excellent. While it can be dangerous investing behaviour to keep “averaging down” on stocks, your growth, efficiency and valuation analysis is stellar on this one. 15-16% return in a whole year (considering the risk-return in this economy) may not be stellar though, considering that the dividend yield for this stock is not very impressive too. My opinion is that an individual investor should rather hold on till profit takers exit (at least 3 weeks after Mark down). But investors who really want to play the long game will find this stock a good mine over the next 3-5 years.

Do Your Due Diligence (DYDD), please.

? Oge!

Johnson Olujide
4 years ago

My concern on Stanbic is the low dividend yield.

4 years ago

Been a keen reader of your posts since 2017. I feel stanbic is way overpriced at the moment and from your analysis of its Fair value, 19% discount rate is being very generous. Most times i use my investor rate of average return on invested capital for 5 years as a discount rate to cushion for debt especially. Great write up and do your due diligence.

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