AN ATTRACTIVE ENTRY POINT ..., FOR A MEDIUM TERM INVESTMENT LOGIC
A credit loan sharply penalized by the Covid-19 pandemic
As expected, the mid-term proved to be particularly difficult for the consumer loan business (Research Paper-Eqdom April 2019). In fact, the lockdown’s economic repercussions have resulted in both a weakening of demand and an increase in the cost of risk within this sector.
The lack of visibility of households, the loss of revenues within several activities and the postponement of loan repayments from customers in difficulty are the main constraints currently faced by financing companies.
A lack of visibility in 2020 which weighs on the cost of risk
At the end of H1-20, Eqdom shows a decline of -35% in its net loan production, dropping from MAD 1.319 Mn to MAD 863 Mn. Note that the impact on the consolidated NBI is less pronounced at -8.3% thanks to the resilience of customer outstanding which fell by only -1.6%.
Faced with the fragility of local demand and the lack of visibility in 2020 regarding the return to normal of the Moroccan economy, the provisioning effort is significant. Thus, the operator's net cost of risk increased by +166% to MAD 90 Mn in H1-20.
A new growth scenario over the 2021-2022 period
Within this particularly unfavorable context for the consumer loan business, we believe that Eqdom would show a significant lag compared to our initial 2020-2022 business plan published before the Covid-19 crisis (Book Afrique - February 2020)
. In 2020, we forecast a profit of MAD 68 Mn, down -50% compared to 2019. Over the period 2021-2022, the NIGS would recover to MAD 95 Mn and then to MAD 130 Mn (taking into account the cost of risk gradual normalization. As an indication, this target earning power remains below to that recorded in FY 2019, i.e. MAD 136 Mn.
Nevertheless, the stock’s correction on the market seems disproportionate
Under the assumption of Eqdom's return to a recurrent profit of MAD 130 Mn by 2022, the stock would trade at attractive multiples. These are a P/E 22E of 12.7x and a D/Y 22E of 6.0% on the basis of an ordinary DPS of MAD 60 in comparison to MAD 80 historically.
By integrating our growth scenario and taking into account a 9.5% discount rate, the stock's valuation comes out at MAD 1,200, offering an upside potential on the stock market of 22%.
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