Dividend Approval Will Reflect Positive Future Outlook

Key Takeaways

• Strong net profit growth and customer deposit increases indicate sound financial performance, suggesting potential for future revenue and earnings growth.
  
• Strategic asset allocation to proprietary bonds aims to improve future yields, potentially boosting net interest income and enhancing net interest margins.
  
• Heavy reliance on proprietary investments and regulatory risk could impact earnings growth and shareholder returns amidst slow loan expansion and asset quality concerns.

Catalysts

Provides corporate and retail banking services in Qatar.

• With net profit growing by 6.6% to a record QAR 892 million and strong customer deposit growth at 8.5%, Ahli Bank demonstrates sound financial performance that could catalyze future revenue and earnings growth.
  
• Investment in proprietary bonds reaching an all-time high of QAR 9.4 billion indicates strategic asset allocation aimed at future yield improvement, which could positively affect net interest income.
  
• The approval of a 25% dividend, pending regulatory and assembly acceptance, suggests strong future cash flow projections and could enhance earnings per share (EPS).
  
• Conservative provisioning practices and a low non-performing loan (NPL) ratio of 2.91% within industry benchmarks could lead to improved asset quality, potentially resulting in better net margins.
  
• The potential normalization of interest rates from the current steady levels could further enhance net interest margins through increased bond yields.
  

Ahli Bank Q.P.S.C Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ahli Bank Q.P.S.C's revenue will grow by 15.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 65.9% today to 51.1% in 3 years time.
• Analysts expect earnings to reach QAR 1.0 billion (and earnings per share of QAR 0.38) by about February 2028, up from QAR 847.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.7x on those 2028 earnings, up from 10.9x today. This future PE is greater than the current PE for the QA Banks industry at 11.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.37%, as per the Simply Wall St company report.

Ahli Bank Q.P.S.C Future Earnings Per Share Growth

Risks

• The slight drop in total assets resulting from the repayment of a USD 500 million EMTN tranche could potentially limit future earnings growth if not offset by other income-generating activities.
  
• Despite a satisfactory increase this year, the soft growth in loans and advances may signal challenges in expanding the bank's core lending activities, impacting future revenue growth.
  
• The conservative increase in provisioning due to slightly higher than last year's non-performing loans (NPL) ratio at 2.91% could pressure net margins if asset quality deteriorates further.
  
• Heavy reliance on proprietary investments, particularly in bonds, exposes the bank to interest rate risk; any unfavorable shifts in interest rates could negatively impact net interest income.
  
• Dividends and profit distribution are subject to approval by the Qatar Central Bank, introducing regulatory risk that could affect shareholder returns and earnings predictability.

Valuation

• The analysts have a consensus price target of QAR3.786 for Ahli Bank Q.P.S.C based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be QAR2.0 billion, earnings will come to QAR1.0 billion, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 20.4%.
  
• Given the current share price of QAR3.63, the analyst price target of QAR3.79 is 4.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.