Company Alert: Davivienda - Lower-than-expected tax rate explained the positive surprise on the bottom line
4Q17 Results - Hold
March 14, 2018 (Investorideas.com Newswire) Davivienda released 4Q17 results. Net profits for the quarter were COP 359.9 bn, equivalent to a 32.7% y/y decline but 16.6% above our expectations. Profitability, measured in terms of ROAE, was 13.6%, compared to our estimate of 11.7%. Operating income and provision expenses came in line with our expectations. It is worth mentioning that cost of credit was 2.6% in 4Q17, slightly lower than the previous quarter (2.7%). Meanwhile, total NPL ratio declined 11 bps compared to 3Q17 to 2.76%, mainly driven by the corporate and consumer segment. OPEX presented a mild negative surprise. Despite this negative surprise, we believe that the positive surprise on the bank’s bottom line was mainly driven by a lower-than-expected effective tax rate. In fact, Davivienda reported an unusual tax rate of 12.6%, compared to our forecast of 27.2% (similar to previous quarters). According to the bank, non-constitutive income derived from the merger between Deceval and the Colombian Stock Exchange and a lower rate as a result of the tax gain due to the sale of fixed assets recorded in 4Q17 explained this behavior.
All in all, we believe that results were neutral as the positive surprise on the bottom line was driven by extraordinary effects. We reiterate our HOLD rating, and we remain focused on additional improvements in asset quality indicators.
Loan growth maintained a downward trend. In 4Q17, loan growth was 7.3% y/y, compared to 9.2% y/y and 13.8% y/y reported in 3Q17 and 4Q16, respectively. A slower pace of growth continued to be mainly explained by the commercial segment, which advanced 3.3% y/y, compared to 12.4% y/y in 4Q16.
Provision expenses remained high, but other asset quality indicators showed positive improvements. The commercial NPL ratio declined 26 bps compared to 3Q17, while the consumer segment fell 5 bps compared to the same period. This was the first time since 4Q16 that NPLs in these segments exhibited a quarterly decline. Despite improvements, the bank was cautious in the conference call regarding the outlook for 2018.
Capital ratios were higher than in 4Q16, but remained below main peers in Colombia. The bank’s solvency ratio reached 12.3% with a Tier 1 ratio of 7.5%. The latter was higher than the level reported one year ago (6.5%) but still lower than the levels (above 10.0%) reported by peers in Colombia.
For charts, tables and the full report, see the pdf file
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Juan Camilo Dauder
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