Absa Kenya's profits grew 29%, despite nearly doubling interest expenses
As is my tradition, we'll talk dividends before anything else; the board approved an interim dividend of KES 0.2, this matches the previous(HY23) interim dividend. The earnings per share grew by an impressive 29% to KES 1.97 - growth that would put a smile on any investor's face. Abdi Mohamed, the firm's MD & CEO, is definitely putting our capital to good use. The stock price is proof of this—it's at a 9-year high of KES 14.50. Here's what has been driving this growth, in both the company and the share price.
The revenues are up 16% at KES 31.8B, good numbers, granted the headwinds faced by players in the banking industry. Funded income contributed significantly to the firm’s increased revenues. Non-funded income played its part in absa's performance, growing by 8.4% - this was driven by the company's efforts to diversify traditional revenue sources and strong performance from new revenue streams such as asset management and brokerage services. Interest income grew by 29% - this was one of the key contributors to the 29% growth in net profits. The group's customer deposits increased by 6.2% to KES 353.3B, while the bank's went up by 6.5% to KES 358.1B. During this time period, customer assets remained steady. Total liabilities on the firm's books dropped by 7.1%, to KES 408.4B - as borrowed funds among other liabilities were reduced.
Expenses rose in different categories on the financials; with interest expense grabbing my attention - increasing by 90% to KES 8.8B. I had to double check this, I mean with the high interest rate environment an increase in this expense was expected, but certainly not by 90%. The increase in deposits played a role in this, though it(deposits) only went up by 6%. Total assets decreased by 4.4% as the company offloaded portions of its government securities holdings, they're probably trying to protect their rating after some of their peers got downgraded for their heavy exposure. I was looking at the overview online and saw that the loans and advances was a number without stats. Their loan book shrank by 50 basis points(half a percent) to KES 316.4B, uncertainty might be part of the reason for this - as customers postponed taking loans. Operating expenses went up by 8% and staffing costs specifically increased by 10.1%, the board mentioned that the transformational investments contributed to an increase costs by 12%, however, ongoing cost control measures improved the cost-to-income ratio. One concerning number, is the number of NPLs1. It grew by 22% YOY2 to KES 39.4B.
Conclusion
That's the report; Absa performed pretty well. The profits we've seen came from diversified revenue sources and new revenue streams such as their brokerage services. Their share price has been going up into the right and their investments should propel the firm to greater heights. Their rating should be spared by the rating agencies, as they seem to be hedging their exposure to government securities. Their NPLs should be addressed. The 22% spike is understandable in the short term, but less so in the long term. In the meantime, we'll be eagerly waiting for the dividend that'll be payed out on or around the 15th of Oct.
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Resources
Absa Bank Ke - financials(unaudited)
Footnotes
NOTE : These are personal opinions and aren't shared by the firm, our shareholders and/or associates