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Profitability not Fully Rewarded by the Market

ProCredit Holding (PCB), the parent company of a development-oriented group of commercial banks for small and medium enterprises, reported a strong Q323 return on equity (ROE) of 12.5%, assisted by a significant increase in net interest margin (NIM) to 3.9% (vs 3.2% in Q322 and 3.6% in Q223) on the back of continued positive asset repricing from higher base rates (which more than offset deposit repricing). As a result, operating income grew by 26.5% y-o-y (ahead of operating expenses), bringing PCB’s cost to income ratio (CIR) to 57.1% (vs 61.9% in Q322). This was coupled with a moderate annualised cost of risk of 55bp (9M23: 20bp). PCB’s management guides to FY23 ROE of c 12% (vs 8–10% earlier this year), which is in line with its current mid-term ROE target. Edison Group has raised their FY23 and FY24 net income estimates by 28% and 15%, respectively. PCB is likely to pay out one-third of its FY23 profits, implying currently a healthy dividend yield of 7.5%.

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