Intermarket Securities released a report today projecting that the scrip of Meezan Bank Limited (PSX: MEBL) is expected to reach Rs240 per share by the end of December 2024. The report attributes this optimistic outlook to the bank’s robust balance sheet growth of over 15% per annum.

The report highlights key factors contributing to this forecast:

  1. Earnings Per Share (EPS) Estimates: Intermarket Securities has raised its EPS estimates for MEBL by an average of 15% for the years CY24-28f. This adjustment accounts for the anticipated robust balance sheet growth and higher profit margins.
  2. Cost-to-Income Ratio: Strong revenues are expected to maintain the Cost-to-Income ratio at a low of 25% for the current year. However, it is forecasted to settle at 45% over the medium term as interest rates normalize.
  3. Deposit Base Growth: MEBL has demonstrated impressive growth in its deposit base, achieving a 34% year-on-year growth in CY23. The bank has improved its deposit mix, with current accounts now comprising 48% of deposits.
  4. Fee Income: MEBL reported a significant 37% year-on-year increase in fees in CY23, driven by its debit cards business and branch banking fee, offsetting the normalizing foreign exchange income.
  5. Branch Network Expansion: Despite a slower pace, MEBL continues to expand its brick-and-mortar network. In CY23, 42 new branches were opened, bringing the total to 1,004 branches.
  6. Capital Adequacy Ratio (CAR): MEBL’s strong profits in recent years and restrained cash payout ratio have resulted in a CAR of 22.4%, well above the regulatory minimum. This provides the bank with ample room to enhance its dividend profile if desired.

Intermarket Securities has also downgraded its stance on MEBL to Neutral, citing earnings at a cyclical peak and valuations no longer at a discount to the historical average.

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