KCB Group posted a marginal 41bps y/y climb in after-tax profits (PAT) to KES 30.72Bn in the nine months to September 2023. The trailing earnings per share (EPS) momentum however improved 998bps to KES 12.75 over the quarter. Profitability was compressed by a faster surge in operating costs (57.00% y/y), relative to the uptick in operating incomes (27.30% y/y). The trailing Returns on Equity (ROE) improved 110bps q/q to 20.15% while the trailing returns on assets (ROA) flatlined q/q at 2.40%.
Deposit growth soared by unprecedented margins on faster deposit mobilization across regional subsidiaries, even as the overall balance sheet crossed the KES 2.00Tn mark. Group deposits soared 79.60% y/y to KES 1.65Tn, while net loans and advances grew by 38.1% y/y to clock KES 1.05Tn – driven by unwinding demographic dividends from Tanzania, Uganda and Trust Merchant Bank (DRC) businesses. Despite the increased scope to pump reinvestment returns, the Group’s net interest margins narrowed 30bps to 6.62% – driven by a faster jump in the cost of funds (78bps) relative to the yield on interest earning assets (48bps y/y). The group also posted a 43.02% jump in fair value losses on their government holdings to KES 10.24Bn – implying a high duration-sensitive, government securities portfolio.
Valuation – The counter is currently trading at a P/E ratio of 1.55x and a P/B ratio of 0.29x. The counter closed yesterday’s trading at KES 19.70 - representing a YTD loss of 48.30%. We maintain our 12-month HOLD recommendation on the counter with a target price of KES 25.50 representing an upside of 29.44% from yesterday’s closing price.
