Head of Financials Equity Research
Aug 19 2019
Domestic leader with a growing international franchise. State Bank of Mauritius Holdings Ltd (SMBH) is the second-largest financial institution in Mauritius, with close to one-quarter of the market for customer loans and deposits. It is on-the-ground in Kenya, India, Madagascar and the Seychelles, and also sources international hard-currency loans. SBMH has US$6.7bn total assets, US$480mn market cap and US$95k 6-month ADV.
We forecast 27% CAGR earnings growth to 2023. Key drivers include 11% CAGR in loans, lower credit risk costs and a lower tax rate. We see the cost/income ratio peaking in 2020, then gradually improving. We forecast return on tangible equity (ROTE) rising to 12.9% in 2023, though this is still well below the performance of MCB Group, SBMH’s closest peer.
Discounted valuation, rapid EPS growth to attract investor interest. SBMH trades at 0.6x 2019f tangible PB, 7.4x 2019f PE and 6.2x 2020f PE. This is a sizeable discount to regional peers (0.8x 2019f PB) – we think this reflects the recent poor financial performance of the business (5.9% ROTE in 2018) and uncertainty regarding the asset quality of the franchise. We expect delivery of sustained improvements in both these areas.
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