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EUR491m
Research: Financials
ProCredit Holding (PCB) has delivered another strong set of results, posting Q124 net income of €33.5m (up 14% y-o-y), which translates into an annualised ROE of 13.4%. Earnings were supported by a sustained solid net interest margin (NIM; at 3.7% annualised vs 3.4% in Q123) and low cost of risk (2bp). Meanwhile, PCB reported a higher cost-income ratio (CIR, 61.7% in Q124 vs 59.7% in Q123) as it ramps up its new strategic agenda. In line with PCB’s dividend policy, the management board will propose at the AGM (on 4 June 2024) the payout of one-third of PCB’s FY23 profits, translating into a dividend per share of €0.64, which implies a healthy 6.4% dividend yield.
ProCredit Holding |
A solid start to 2024 |
Q124 results |
Banks |
21 May 2024 |
Share price performance
Business description
Next events
Analyst
ProCredit Holding is a research client of Edison Investment Research Limited |
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ProCredit Holding (PCB) has delivered another strong set of results, posting Q124 net income of €33.5m (up 14% y-o-y), which translates into an annualised ROE of 13.4%. Earnings were supported by a sustained solid net interest margin (NIM; at 3.7% annualised vs 3.4% in Q123) and low cost of risk (2bp). Meanwhile, PCB reported a higher cost-income ratio (CIR, 61.7% in Q124 vs 59.7% in Q123) as it ramps up its new strategic agenda. In line with PCB’s dividend policy, the management board will propose at the AGM (on 4 June 2024) the payout of one-third of PCB’s FY23 profits, translating into a dividend per share of €0.64, which implies a healthy 6.4% dividend yield.
Year end |
Net interest income (€m) |
EPS* |
DPS |
P/BV |
P/E* |
ROE |
Dividend yield (%) |
12/22 |
264.6 |
0.28 |
0.00 |
0.64 |
35.7 |
1.9 |
N/A |
12/23 |
337.2 |
1.92 |
0.64 |
0.56 |
5.2 |
12.2 |
6.4 |
12/24e |
365.9 |
1.94 |
0.65 |
0.52 |
5.2 |
11.2 |
6.5 |
12/25e |
391.6 |
1.97 |
0.66 |
0.49 |
5.1 |
10.6 |
6.6 |
Note: *EPS as reported by the company
FY24 management guidance maintained
Despite the very strong start of the year (including solid loan book and deposit growth of 3.0% and 2.8%, respectively), management has refrained from raising its FY24 guidance and reiterated its earlier expectations. It therefore continues to assume an FY24 return on equity of 10–12% (based on a cost of risk of up to 40bp), growth in loan portfolio at around 10% excluding fx, a cost-income ratio of around 63%, as well as a CET-1 ratio above 13%. We maintain our forecasts as well and expect an FY24 ROE of 11.2% on the back of a 10% loan book growth and a CIR of 63.5%.
Successful placement of green tier-2 bonds
Since the reporting date, PCB has strengthened its total capital ratio (TCR) by the successful placement of €125m green tier-2 (subordinated) bonds on 25 April 2024. The bonds bear a fixed coupon at 9.5%, mature in 2034 (with a call right in 2029) and were rated BB- by Fitch (PCB’s issuer rating of this agency is BBB). Management highlighted that the geographically diverse strong demand allowed PCB to upsize the issue from the originally assumed €100m. The placement was carried out under PCB’s green bond framework, which was subject to a second-party opinion from Sustainalytics. The bond issue (which, according to PCB, can finance more than €1bn of asset growth) resulted in a 2pp increase in the TCR to a pro-forma end-March 2024 figure of 17.7%.
Valuation: Offering close to 43% upside potential
We have reduced our fair value estimate slightly for PCB’s shares to €14.30 per share (compared to €14.70 previously) on the back of updated peer multiples. We retain our sustainable return on tangible equity assumption of 11% for now. Reflecting PCB’s targeted 13–14% profitability (see our recent outlook note for details) would bring our valuation to €16.90–18.20 per share.
High NIM continues to support PCB’s profitability
PCB delivered a healthy annualised Q124 ROE of 13.4% (slightly above the 13.3% in Q123), with both Southeastern Europe and Eastern Europe making good contributions with annualised ROE of 16.3% and 20.6%, respectively (partly offset by the -9.3% return in Ecuador). PCB’s profitability was assisted by continued strong NIM of 3.7% (vs 3.8% in Q423 and 3.4% in Q123) on the back of supportive volume effects and the positive impact from assets repricing (€15.8m), which more than offset liabilities repricing (€8.9m). The slight sequential NIM reduction came primarily from banks in Serbia (seasonal effect in Q423 and increased liability volume effects) and Ukraine (due to a lower base rate), while other local banks had a broadly stable NIM. Meanwhile, group net fee and commission income remained broadly stable year-on-year at €14.1m.
Exhibit 1: Q124 results highlights
€m, unless otherwise stated |
Q124 |
Q123 |
y-o-y change |
Net interest income |
90.1 |
75.4 |
19.4% |
Net interest margin (annualised) |
3.7% |
3.4% |
26 bp |
Expenses for loss allowances |
0.3 |
1.9 |
-84% |
Cost of risk (annualised, bp) |
2 |
12 |
-10 bp |
Net fee and commission income |
14.1 |
14.0 |
0.6% |
Pre-tax profit |
40.7 |
35.9 |
13% |
Net income |
33.5 |
29.5 |
14% |
ROE |
13.4% |
13.3% |
8 bp |
CIR |
61.7% |
59.7% |
205 bp |
CET-1 ratio (fully loaded) |
14.3%* |
14.1% |
0.2 pp |
Deposit to loan ratio |
116.2% |
104.3% |
11.9 pp |
Gross loan portfolio growth (q-o-q) |
3.0% |
-0.8% |
3.8 pp |
Customer deposits growth (q-o-q) |
2.8% |
0.6% |
2.2 pp |
Source: Company data. Note: *Updated for the recognition of Q124 profits based on the regulatory approval obtained on 6 May.
PCB’s loan book increased by 3.0% in Q124 and management highlighted good contribution from all segments, with most of the increase coming from SMEs (as investment appetite is picking up, especially in Western Balkans), but growth was also assisted by micro (12.8% sequential growth) and private clients (6.7%). The solid momentum was despite some further reduction in the loan book in Ukraine (by €42m or 8.4% vs end-2023) due to higher-than-expected repayments and early repayments (loan book growth excluding Ukraine was 4.0% in Q124). The Ukrainian loan book now accounts for 7% of PCB’s total loan portfolio (down from c 13% at end-2021).
PCB continues to attract significant deposit volumes, which grew by 2.8% (or by €200m) in Q124, with private client deposits accounting for 80% of growth (and increasing by more than 5%). As a result, PCB’s deposit-to-loan ratio stood at 116.2% at end-March 2024, up by 11.9pp y-o-y (slightly down from 116.5% at end-December 2023). The year-on-year deposit growth allowed PCB to reduce non-customer funds by €185m, supporting its NIM.
As a result, PCB’s operating income grew by 14.3% y-o-y to €107.2m in Q124. PCB’s cost-income ratio stood at 61.7% in Q124 vs 59.7% in Q123, as personnel and administrative expenses (most notably IT, marketing and infrastructure expenses) grew by €10.2m (or 18%) y-o-y to support PCB’s updated strategy (see our recent outlook note for details). It is worth highlighting that the average salary across the group increased by only 3% y-o-y in Q124 (vs 8% y-o-y in 2023), despite the 14% y-o-y increase in headcount.
The company’s profitability was further assisted by a very low cost of risk of €0.3m in Q124 (or 2bp annualised), as €1.4m of provisions for credit risk (which accounts for the growth in PCB’s loan book in the quarter) and €2.2m of management overlays booked for Ukraine was largely offset by recoveries of written off loans (€3.3m). We note that PCB maintained a high level of management overlays at €64.4m as at end-March 2024, of which €25.5m were attributable to Ukraine. The share of stage three loans declined slightly to 2.6% at end-March 2024 from 2.7% at end-December 2023 (3.2% at end-March 2023).
PCB’s fully loaded CET-1 ratio stood at 14.3%, while its TCR was 15.7% at end-March 2024. As discussed above, this was further supported by the green tier-2 bond issue, which added 2pp to the TCR. Here, we note that c €30m of PCB’s €139m subordinated debt outstanding at end-2023 was classified as short term (ie with a maturity of up to 12 months) and PCB’s management will decide on its refinancing on a case-by-case basis.
Making steady progress on its ESG agenda
PCB’s green loan portfolio reached almost €1.3bn (c 20% of total loan book) at end-March 2024, increasing by 1.0% sequentially after growing at an FY18–23 CAGR of 13% (see Exhibit 2). The renewable energy projects financed by PCB translated into a 191.9k tonne reduction of carbon dioxide emissions in 2023. Management targets a green loan book of at least 25% of total loan portfolio in the medium term. PCB also measures its ESG impact through the number of business clients and the number of jobs supported through its business loan clients, which in 2023 stood at 72,477 and 193,344, respectively. The latter includes 42% and 7% of female and youth employment, respectively.
|
Exhibit 2: Evolution of PCB’s green loan book |
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|
Source: Company data |
PCB recently highlighted that its near-term targets were validated by the Science Based Targets initiative as science-based in accordance with the Paris Climate Agreement. PCB committed to reducing the group’s absolute Scope 1 and Scope 2 greenhouse gas emissions by 42% by 2030 compared to 2022. It plans to achieve this mainly through increasing the share of renewable energy providers among its suppliers (we also note it recently commissioned its own 3 MW photovoltaic park in Kosovo), as well as increasing the electric cars fleet (electric and hybrid plug-in cars made up 61% of its fleet at end-2023) and introducing energy efficiency measures at its premises and in its processes. It reduced group energy consumption and indoor water consumption per employee by 7.4% and 7.8% in 2023, respectively, and six of its premises are certified by EDGE. The company also noted that its validated Scope 3 Portfolio Targets cover 57% of its overall investment and lending by total assets as of 2022 (Scope 3 emissions represent over 95% of its total emissions). PCB’s Scope 3 target is to engage with SMEs responsible for 28% of the group’s portfolio emissions (with an emphasis on agriculture and manufacturing sectors) to encourage them to set their own science-based targets by 2027.
PCB’s social performance is also measured by its employee diversity (54% of female representation in the middle management in 2023, up from 48% in 2022), as well as hours of training per employee (114 in 2023 vs 139 in 2022) and annual investment in employee training (€9.4m in 2023 vs €7.4m in 2022). We also note the low turnover rate at group level of 8% in 2023 (down from 11% in 2022).
Exhibit 3: Financial summary
Year ending 31 December, €000s |
2019 |
2020 |
2021 |
2022 |
2023 |
2024e |
2025e |
2026e |
2027e |
2028e |
Income statement |
|
|
|
|
|
|
|
|
|
|
Net interest income |
194,533 |
201,561 |
222,021 |
264,634 |
337,224 |
365,945 |
391,639 |
432,587 |
477,867 |
529,361 |
Net fee and commission income |
51,972 |
47,380 |
50,855 |
54,731 |
57,525 |
60,300 |
65,164 |
69,472 |
74,165 |
79,279 |
Operating income |
249,275 |
252,114 |
281,881 |
339,848 |
412,506 |
442,896 |
475,119 |
522,401 |
574,626 |
633,688 |
Operating expenses |
175,737 |
171,430 |
180,859 |
217,428 |
246,979 |
281,034 |
312,782 |
335,939 |
358,942 |
377,394 |
Loss allowances |
(3,327) |
28,600 |
6,490 |
104,573 |
15,513 |
25,889 |
23,798 |
26,497 |
29,765 |
33,102 |
PBT |
76,865 |
52,084 |
94,532 |
17,847 |
150,015 |
135,973 |
138,538 |
159,965 |
185,918 |
223,191 |
Net profit after tax |
54,304 |
41,395 |
79,641 |
16,497 |
113,372 |
114,156 |
116,210 |
134,641 |
156,584 |
188,328 |
Reported EPS (€) |
0.89 |
0.70 |
1.35 |
0.28 |
1.92 |
1.94 |
1.97 |
2.29 |
2.66 |
3.20 |
DPS (€) |
0.00 |
0.53 |
0.00 |
0.00 |
0.64 |
0.65 |
0.66 |
0.76 |
0.89 |
1.07 |
Balance sheet |
||||||||||
Cash and balances at central banks |
1,081,723 |
1,405,349 |
1,545,523 |
1,939,681 |
2,347,617 |
2,668,376 |
2,821,521 |
3,123,343 |
3,529,375 |
3,970,793 |
Loans and advances to banks |
320,737 |
236,519 |
252,649 |
280,453 |
372,141 |
372,141 |
372,141 |
372,141 |
372,141 |
372,141 |
Investment securities |
378,281 |
336,476 |
410,400 |
480,168 |
750,542 |
750,542 |
750,542 |
750,542 |
750,542 |
750,542 |
Loans and advances to customers |
4,690,961 |
5,131,582 |
5,792,966 |
5,892,796 |
6,029,715 |
6,643,442 |
7,385,232 |
8,243,839 |
9,189,951 |
10,246,999 |
Property, plant and equipment and investment properties |
138,407 |
140,744 |
137,536 |
133,703 |
137,423 |
137,423 |
137,423 |
137,423 |
137,423 |
137,423 |
Intangible assets |
20,345 |
19,316 |
18,411 |
17,993 |
22,732 |
22,732 |
22,732 |
22,732 |
22,732 |
22,732 |
Other assets |
67,106 |
59,315 |
58,416 |
81,330 |
88,798 |
93,444 |
88,798 |
93,444 |
88,798 |
93,444 |
Total assets |
6,697,560 |
7,329,301 |
8,215,901 |
8,826,124 |
9,748,968 |
10,688,100 |
11,578,389 |
12,743,464 |
14,090,962 |
15,594,074 |
Liabilities to banks |
1,079,271 |
1,235,763 |
1,313,666 |
1,318,647 |
1,127,680 |
1,048,742 |
1,111,667 |
1,067,200 |
1,045,856 |
993,563 |
Liabilities to customers |
4,333,436 |
4,898,897 |
5,542,251 |
6,289,511 |
7,254,236 |
8,070,940 |
8,820,147 |
9,933,784 |
11,190,923 |
12,610,193 |
Debt securities |
343,727 |
266,858 |
353,221 |
191,988 |
147,088 |
147,088 |
147,088 |
147,088 |
147,088 |
147,088 |
Subordinated debt |
87,198 |
84,974 |
87,390 |
93,597 |
139,269 |
264,269 |
264,269 |
264,269 |
264,269 |
264,269 |
Other liabilities |
50,436 |
63,080 |
63,059 |
62,946 |
96,906 |
96,906 |
96,906 |
96,906 |
96,906 |
96,906 |
Total liabilities |
5,894,068 |
6,549,573 |
7,359,587 |
7,956,689 |
8,765,179 |
9,627,946 |
10,440,077 |
11,509,247 |
12,745,042 |
14,112,020 |
Total shareholders' equity |
803,492 |
779,728 |
856,314 |
869,435 |
983,789 |
1,060,154 |
1,138,312 |
1,234,216 |
1,345,920 |
1,482,054 |
BVPS |
13.5 |
13.2 |
14.5 |
14.8 |
16.7 |
18.0 |
19.3 |
21.0 |
22.9 |
25.2 |
TNAV per share |
13.1 |
12.9 |
14.2 |
14.5 |
16.3 |
17.6 |
18.9 |
20.6 |
22.5 |
24.8 |
Ratios |
|
|
|
|
|
|
|
|
|
|
NIM |
3.10% |
2.90% |
2.90% |
3.11% |
3.63% |
3.58% |
3.52% |
3.56% |
3.56% |
3.57% |
Costs/Income |
70.5% |
68.0% |
64.2% |
64.0% |
59.9% |
63.5% |
65.8% |
64.3% |
62.5% |
59.6% |
ROE |
6.9% |
5.3% |
9.7% |
1.9% |
12.2% |
11.2% |
10.6% |
11.3% |
12.1% |
13.3% |
CET1 Ratio |
14.1% |
13.3% |
14.1% |
13.5% |
14.3% |
14.3% |
14.4% |
14.5% |
14.5% |
14.8% |
Tier 1 ratio |
14.1% |
13.3% |
14.1% |
13.5% |
14.3% |
14.3% |
14.4% |
14.5% |
14.5% |
14.8% |
Capital adequacy ratio |
15.7% |
14.7% |
15.3% |
14.3% |
15.8% |
17.6% |
17.5% |
17.3% |
17.1% |
17.1% |
Payout ratio (%) |
33.3%* |
33.3%* |
0.0%** |
0.0%** |
33.3% |
33.3% |
33.3% |
33.3% |
33.3% |
33.3% |
Customer loans/total assets |
71.6% |
71.7% |
72.1% |
69.1% |
63.9% |
64.1% |
65.5% |
66.3% |
66.8% |
67.2% |
Deposits/loans |
90.3% |
93.2% |
93.5% |
103.0% |
116.5% |
117.9% |
116.3% |
117.6% |
119.0% |
120.4% |
Source: PCB data, Edison Investment Research. Note: *In 2021, PCB distributed one-third of the accumulated profits from 2019 and 2020. **In light of the war in Ukraine and the risk of a broader escalation of the conflict, which could have adversely affected PCB’s business in the entire region, no dividends were paid in 2022 and 2023, contrary to PCB’s dividend policy of distributing one-third of consolidated profits.
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Research: Consumer
Britvic’s interim results showcased a positive first half of FY24, with strong revenue growth across core brands and geographies. This was underpinned by a robust increase in volumes, reflecting product innovation and growth across its strategic pillars. Positive price/mix helped enable a 70bp improvement in margins. The enhanced profitability permitted a 16% increase in the interim dividend. Britvic continues to make strategic progress against the growth pillars of family favourite brands, Brazil and new growth areas. Management remains confident in the outlook, particularly with several key consumer activation events upcoming in the critical summer trading period. The company announced its third share buyback programme of up to £75m over the next 12 months.