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RBL, FIRST: Earnings stable

Today we at Bourse review the nine month (9M) performance of two large cap banks listed on the local stock exchange: Republic Bank Limited (RBL) representing $19.7b or 18 per cent of the Trinidad and Tobago Composite Index (TTCI) and First Citizens Bank Limited (FIRST) representing $9b or 8 per cent.

Republic Bank Ltd (RBL)
For the nine months ended June 30th 2014, Republic Bank Limited (RBL) reported an increase of $0.04 ( 0.74 per cent) in diluted EPS from $5.34 to $5.38 versus the comparable period last year. At a current price of $121.94, RBL is trading at a trailing P/E of 16.7x with a trailing dividend yield of 3.5 per cent (see Exhibit 1).
For the nine month period, the company saw growth in both Net Interest Income (NII) and Other Income. NII grew by 5.2 per cent from $1.62b to $1.7b whilst Other Income grew by 19.1 per cent from $927m to 1.1b. Growth in the bank’s loan portfolio from $24.6b to $26.6b ( 8.5 per cent) was boosted by improvements in the economies of Trinidad and Tobago and Guyana.
Analysing the geographical segments of the bank, the company posted growth of operating income and Net Profit before Tax in Barbados and Cayman, Guyana and Eastern Caribbean regions.
RBL has stated that it continues to face challenges in Barbados and the Eastern Caribbean due to weak economic performance.
Profit before Tax (PBT) rose 4.1 per cent for the nine months when compared to the first nine months of 2013. The positive results generated even within a low interest rate environment in RBL’s main market (Trinidad & Tobago) augur well for the company. RBL’s chairman also stated that the bank expects the positive performance to continue through the last quarter of its financial year ending September 2014.

Bourse View….
At a current price of $121.947 and a P/E Multiple of 16.7x as at 8th August, 2014, RBL is trading above its 5 year historical average of 13.9x. With an attractive trailing dividend yield of 3.5 per cent, BOURSE rates the stock a HOLD.

First Citizens Bank Limited (FIRST)
For the nine months ending June 30th 2014 (the period), FIRST recorded EPS of $1.90 which was flat when compared to the comparable period for 2013. This performance occurred despite a prevailing low interest rate environment, high liquidity and reduced credit demand locally according to data released from the Central Bank of Trinidad and Tobago.
Currently, FIRST is trading with a trailing P/E of 14.9x lower than the weighted average P/E of 17.8x of the local banking sector (by market cap) in the sector.
For the period, the Group recorded a 2.8 per cent growth in Total Net Income which moved to $1.28b from the $1.25b registered in the 2013 comparable period. This improvement in FIRST’s topline was mainly due to a 13 per cent appreciation in the Other Income segment which rallied $414m compared to the $366m recorded at the end of the June 2013. However, Net Interest Income declined to $868m from $881m in 2013, a 1.5 per cent drop which is representative of the sluggish growth in credit demand being witnessed across the local banking sector.
Profit after tax improved by 2.9 per cent, reaching $477m from the $464m recorded at the end of the 9M period in 2013.

Bourse view…
The company expects a stronger performance for the remainder of 2014 moving into 2015 as the Group has stated its intentions to focus on enhancing efficiency and generation of Fee income, which should contribute to positive revenue and margin growth. Additionally, during the period FIRST began a strategy of reducing their investment portfolio risk which should decrease the volatility of the Investment business line.
At a current price of $36.00, FIRST has contracted by 10.6 per cent YTD, offering investors an attractive entry point into the stock. FIRST’s Market-to-Book ratio stands at 1.5x, well below the average of other major locally-listed banks of 2.5x (see Exhibit 2). Given its good dividend yield of above 3 per cent, attractive relative valuation and sharpening of corporate strategy, Bourse has a BUY rating on the stock.

For more information on these and other investment themes, please contact Bourse Securities Limited, at 628-9100 or email us at research@boursefinancial.com. The production of this publication is not to in any way establish an offer or solicit for the subscription, purchase or sale of the any securities stated herein to US persons or to contradict any laws of jurisdictions which would interpret our research to be an offer.
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