EquitiesGhana

1 August 2022

SOGEGH 1H2022 Results: A speedy rebound in earnings

In brief

SOGEGH released its unaudited 1H2022 results on Thursday last week, reporting strong numbers. Profit after tax increased by 64.6% y/y driven mainly by robust growth in the bank’s revenue streams. Unlike other banks in our coverage universe, SOGEGH continued to succeed at keeping cost of funds stable, supporting growth in the bank’s net interest margin. The bank also registered impairment gains in 2Q2022, pointing to some improvement in asset quality.

Performance: Robust revenue growth drive earnings

  • Profit after tax increased by 64.6% y/y to GHS 111.6m on the back of strong growth in funded and non-funded income
  • Net interest income rose by 19.1% y/y, driven by a 15.1% y/y rise in interest income coupled with muted growth in interest expense
  • Non-interest revenue increased by 86.2% driven by a 3-fold increase in other operating income
  • SOGEGH reported impairment loss on financial assets of GHS 4.1m in 1H2022 from a gain of GHS 1.7m a year ago. SOGEGH’s NPL ratio fell by 0.5pp y/y to 7.2%
  • Operating expenses increased by 15.2% y/y to GHS 188.9m. SOGEGH’s cost-to-income ratio improved by 10.18pp to 51.8% on account of stronger growth in operating income

Outlook: Fair

  • SOGEGH’s net interest margin (NIM) has been on the rise over the last 2 quarters supported by credit growth and stable cost of funding
  • In line with our expectations, credit growth moderated considerably in 2Q2022 relative to 1Q2022 amidst slowing economic activity on account of rising inflation
  • Given the macro-economic backdrop, we expect loan growth to mimic that of 2Q2022. However, we expect SOGEGHs NIMs to improve further as the bank capitalizes on rising rates on government securities while keeping growth in interest expense muted
  • The impairment gains on financial assets recorded in 2Q2022, somewhat suggests that the bank is on the mend with regards to asset quality with the bank’s NPL ratio improving to 7.2% in 1H2022 from 7.6% in FY2021
  • We also expect inflows from the bank’s non-funded income business to see more growth and drive SOGEGH’s earnings momentum, benefiting from cross-border trade activities and growing demand for forex

 Valuation: Under Review 

  • SOGEGH is trading at a P/BV of 0.6x and we intend to release our rating on the stock in 2H2022