Performance: Strong revenue outturn and lower cost of risk drive earnings up

• Profit after tax grew by 26.1% y/y to GHS 132.5m, falling in line with our forecast. CAL’s earnings grew on the back of strong revenue outturn and a decline in net impairment loss on financial assets
• The bank registered a 30.4% y/y increase in net interest income, supported by continued expansion of the loan book coupled with growth in the stock of investment securities amidst rising interest rates
• Non-funded income rose by 16.3% y/y, driven by growth in net fees and commission income which increased by more than 2-fold
• Impairment loss on financial assets declined by 26.7% y/y to GHS 17.3m with the NPL ratio declining by 4.8pp y/y to 9.0% in HY2022
• Operating expenses increased by 29.8% y/y, reflecting the impact of rising inflation on the bank’s operations. As a result, CAL’s cost-to-income ratio inched up by 1.41pp y/y to 48.3%

Outlook: Broadly positive

• Per our current projections, we forecast CAL’s funded income to remain robust supported by moderate credit growth and higher yields on investment securities as interest rates rise
• In line with our expectations, the bank slowed down loan book growth in 2Q2022 as rising inflation impacted private consumption and production
• We expect credit growth to mimic that of 2Q2022 in the subsequent quarters as the bank weighs the impact of inflation of credit risk while re-balancing its portfolio of investment securities to take advantage of higher rates on treasury bills and bonds
• We also expect non-funded income to remain robust bolstered by inflows from trade financing and credit related fees from lending activities. We expect net trading income to improve as liquidity returns to the fixed income market
• The reduction in the cost of risk suggests that CAL’s asset quality is improving with the NPL ratio now well below management’s guidance of 10%
• Overall, we expect CAL’s bottom-line performance to remain positive driven mainly by growing revenue streams and moderating cost of risk, barring any unforeseen shocks

 Valuation: Hold for now 

• With CAL’s HY2022 results falling broadly in line with our estimates, we maintain our HOLD rating on the stock with a fair value of GHS 0.81 (+8.0% upside), and an earnings per share estimate of GHS 0.41 for FY2022. CAL’s current ROaE of 26.42% continues to trail our cost of equity estimate of 31.42% which in our opinion provides justification for the bank’s discounted multiples