Equity Bank announced 1H10 results, posting a 43.5% y-o-y and 41.5% q-o-q growth in net earnings to KES 3.0bn. The strong y-o-y growth in profitability was occasioned by strong growth in interest income, non-funded income and increased operating efficiencies. We note that earnings growth for the Kenyan banking operation was comparatively high with a 76.1% y-o-y and 108.6% q-o-q growth in net earnings to KES 3.4bn, implying that growth momentum is picking up in the Kenyan bank. The following are more highlights from the results:



· Interest income for the group grew 44.5% y-o-y and 18.1% q-o-q to KES 7.3bn while net interest income grew 22.2% q-o-q to KES 6.3bn. We note that non- interest income grew 32.2% y-o-y, an indication that Equity Bank’s key market (Kenya) has undergone a marked recovery after the slowdown that was witnessed in 2009. Total operating income grew 39.9% y-o-y to KES 10.1bn.

· Cost efficiencies during 1H10 increased after emerging from the spate of expansions that led to cost acceleration in 2009. The cost to income ratio for 1H10 was calculated at 52.9% compared to 53.4% in March Q10.

· Deposit growth picked up with a 52.8% y-o-y and 13.4% q-o-q rise to KES 87.8bn while net advances increased 26.8% y-o-y and 3.2% q-o-q to KES 68.3bn. The bank’s loans to deposits ratio declined to 77.7% in 1H10 compared to 85.4% in March 2010. We expect loan growth to accelerate during the year as the bank seeks lending opportunities in new markets (Uganda and South Sudan), coupled with increased demand for consumer loans in Kenya. We note that the bank’s cost of funds on customer deposits has remained stable at 1.8% while the interest rate on loans and advances was also sustained at 16.8%. Loan loss provisions declined 18.4% q-o-q but increased 210.5% y-o-y to KES 920m. The bank’s provision coverage ratio was 32.9% in 1H10 compared to 39.1% in 1Q10.

· Equity Bank’s customer base has grown from 3.92m in June 2009 and 4.51m in March 2010 to 4.96m customers at the end of 1H10. The branch network has also grown by 20 branches to the current 165 branches since June 2009.

· In Kenya, the bank’s operations have improved significantly owing to the recovery of key sectors, mainly agri-business following the impact improved rainfall from 4Q09. We expect future growth to materialize from regional operations, especially Uganda, which has shown a marked rise in liabilities. The balance sheet restructuring and high provisioning on legacy NPL’s in the Uganda operations will allow the bank to discount its bad loan book and focus on growing its asset base. Management estimates that the Uganda will be profitable by the end of July 2010. In Sudan, Equity Bank will maintain a cautious stance awaiting the outcome of the referendum in January 2011 before embarking on significant branch expansions. Management also hinted that Tanzania is likely to be the next target market in their expansion plans.

· Key growth drivers include cost efficiencies and increased transactional volumes resulting from higher penetration and revenue generation from alternative delivery channels (agency banking, ATMS’s). We also expect the bank’s proportion of interest earning assets to total assets to rise significantly over the year.

· Further, we expect the bank to outperform its sector peers in FY10 and we also foresee strong medium term growth (3yr EPS CAGR of 28.8%) for the bank, driven by an increasing share of sector deposits, rising transaction income as a result of alternative service delivery channels (such as agency banking, mobile banking and point of sale facilities ), and cost stabilization. For FY10, we estimate an EPS growth of 41.7% to KES 1.62.

@qw..... Equity trading 101... Companies that release q1 results have their share price reactions at that point not at H1...
So please dont expect much price reaction rather look for a company that hasn't yet reported.... But equity is a good 8month play

@guru. what is ur price for equity when they announce full year ? thats what i want to know .

Let me calculate the target price when they release their full year results.Remember : target price = Current stock price *{current p/e /forward p/e}

lets first calculate forward p/e : 3.010396b (Profit and Loss after Tax and Exceptional Items) x 2 = 6.020b / 3.702777b = 1.626 eps pers share

so 23.75 / 1.626 = 14.606 Full Year Forward p/e


thus target price will be by subsituting the values in our formula :


23.75 / 1.626 = 14.606 Implied Full Year Forward

23.75 * {20.833 /14.606} = Ksh 33.00

so in essence if you bought htis stock at Ksh 15.00 when it was staggnating at that price you'll just have to wait till end year if you want to double your principal invested.So your target price for end year is Ksh 33.00

Using the same principle, what fwd price do u give KCB?