Crédit Agricole Egypt (CAE) [CIEB]: The Value Algorithm
A short-term bet is short-sighted
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Crédit Agricole Egypt (CAE) [CIEB]
Egypt / Banks / Core Coverage Report
12M PT EGP33.0 (+47%)
set on 13 April 2021
Investment Rating: overweight | Risk Rating: Medium
Key Insights
2021 profits to rise on long-term prospects
During 2020, the COVID-19 environment has seemingly taken a heavy toll on Crédit Agricole Egypt (CAE) [CIEB] which suffered from high operating expenses, lower interest income margins, higher cost of risk (CoR), and more. This nudged the bank’s cost-to-income ratio up to 37%, the highest level since Q4 2014. However, we are optimistic on the bank for 2021, expecting its net profits to rise by 18% y/y to EGP1.6bn. Our view is derived from an expected recovery in core banking income during 2021. We also expect net lending to grow at a 5-year CAGR (2020-2025) of 11% as lending rates become more appealing to borrowers.
Cash dividends paused
Recently, the Central Bank of Egypt (CBE) asked all Egyptian banks to refrain from paying out any cash dividends until further notice. This will support CIEB’s capital base, a needed boost after a slower earnings growth in 2020. However, as earnings normalize over the 2021-2025 period, dividends should resume.
Sterling asset quality ensures steadying lending growth
Despite an increase in NPL ratio to 3.1% in Q4 2020 vs. 2.5% in Q3 2020 and based on a wide coverage ratio of 162%, we expect CIEB’s asset quality to be tested. This test should leave NPLs and their coverage ratio at 3.5% and 114%, respectively, by the end of 2021. We see CIEB getting back on track as of 2023, with provisions being reversed over the years. We predict CoR will reach -8bps in 2025 (due to provisions reversals) vs. 81bps in 2021.
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Shihab M. Helmy
Equity Analyst
T +202 3300 5723