Allied bank Limited: Earnings downgraded; Upside potential still intact – By Shajar Research
We amend our forecast of Allied bank Limited (ABL) for CY16/17 post conference-call that leads us to downgrade our Dec’16 TP to PkR109/sh (Previously: PkR127/sh) though maintaining our “BuY” stance. The stock offers a one-year forward dividend yield of 7%.
We now foresee bank’s earnings clocking in at PkR12.7/sh and PkR13.3/sh in CY16 and CY17 as we incorporate a greater proportion of treasury bills (CY16/17E yield: 6.6-7.2%) and controlled growth in advances (CY16/17E: 8-9%) into our calculations.
We estimate PkR139bn of PIBs (36% of CY16E PIBs) maturing in 2016 and reinvestment of which would dilute average PIB yield by 1-1.5%. Taking this into perspective and forthcoming investments in low-yielding treasury bills, investment yield is likely to reduce by approx. 2-2.5%.
ABL has PkR9bn (PkR7.87/sh) as unrealized gains on their PIB and equity portfolio (non-related party/non-strategic) which would provide impetus to earnings growth. However, we do not see the bank recording impairment reversal going forward as it was booked mainly on the strategic portfolio which is usually retained for the longer term.
By: Shajar Capital Pakistan Private Limited