Diamond Bank weathers regulatory headwinds as 2013FY earnings buoyed

Background

Diamond Bank Plc, the largest tier II bank in Nigeria (by total assets), was established as a private limited liability company in, March 1991 and received a universal banking license in February 2001.

In 2005, the bank successfully merged with Lion Bank, retaining the name Diamond was listed on the on the Nigeria Stock Exchange following a private placement offering.

The bank listed its GDRs on the London Stock Exchange in 2008- the first for any Nigeria bank. Its major shareholder in Diamond is the Dozie brothers’ family firm Actis also has a c.15 stake in the bank.

Diamond Bank has an increased focus on the retail and SME banking segments in Nigeria and is making concerted efforts to maintain its leadership position in the mobile money business as well as actively promoting its internet banking platform.

The bank has a network of 250 branches, total assets of N1.51 trillion, and shareholders’ funds of N138.85 billion as at December 2013.

Financial Performance for the year ended December 2013.

For the year ended December 2013, Diamond bank grew gross earnings by 26.64 percent year on year to N181.15 billion compared to N143.02 billion same period of prior year (FY12).

Interest income in the review period increased by 27.39 percent y/y to N143.12 billion from N112.35 billion in FY12.While net interest income rose by 12.50 percent y/y to N81.33 billion from N72.39 billion in 2012.

Despite the regulatory headwinds by which have been crimping Nigeria banks growth potentials in recent times, Diamond bank weathered the storm with an impressive bottom line performance.

Profit before tax (PBT) for the year ended December 2013, grew by 16.73 percent to year on year to N32.08 billion as against N27.42 billion in the corresponding period of 2012.

Earnings per share EPS increased by 28.75 percent to 197k from 153k in FY 2013.

Net margin, a measure of efficiency and profitability jumped to 15.76 percent in 12M13 from 15.46 percent in 12M12, while cost to income in the review period climbed to 72.38 percent from 71.38 percent in 2012.

Cost of funds for the year ended December 2013 remained flat and stable at 3.48 percent, while loans and advances ratio in FY13 reduced to 57.14 percent as against 64.2 percent in FY12.

Operating expenses (OPEX) in FY13 were up by 22.81 percent y/y to N84.18 billion compared to N68.55 billion as at FY12 thus operating expenses ratio declined to 46.47 percent in 2013 from 48 percent in 2012.

Customer’s loans and advances for the year ended December 2013 (FY13) spiked by 17.17 percent y/y to N689.17 billion compared to N585.20 billion in FY12.

Deposits from other customers in the period under review soared by 32.50 percent y/y to N1.20 trillion from 910.23 billion in 12M12.

The Return on Average Equity ROaE   remained flat at 20.55 percent in FY 2013, while Return on Average Assets ROaA followed suit as it also remained stable at 1.18 percent in FY 2013.

Share performance and outlook

The bank closed trading on the 31^th of March 2014 at N6.35 on the floor of the Nigeria Stock Exchange.

The bank had a market capitalization of N91.91 billion on the same day.  

With a price to book ratio (PBR) of 0.854 xs, Diamond Bank looks cheap compared to some peers.

The economy of Nigeria will provide opportunity as the country’s Gross Domestic Product is expected to increase by 7 percent representing 300bps in 2014 from 6.7 in 2013, according to First Bank Capital in a note released in January 20014.