Should you buy BAFL after its earnings report?

With the recent release of Bank Alfalah Limited’s (BAFL) earnings report for the second quarter of 2024, investors are wondering if it is a good time to invest in BAFL.

Key highlights from the Earnings Report

BAFL reported a consolidated profit after tax of PKR 10.7 billion for 2QCY24, translating to an EPS of PKR 6.8. This represents a notable 36% year-over-year increase from PKR 7.9 billion (EPS: PKR 5.0) in 2QCY23. 

Quarter-over-quarter, the earnings showed an 8% growth, indicating a steady upward trend.

Net interest income (NII) saw a slight decline of 2% year-over-year and 1% quarter-over-quarter, mainly due to a contraction in net interest margins (NIMs). 

However, markup income rose by 26% year-over-year, driven by an 18% growth in deposits. 

The bank also experienced an 88% year-over-year and 55% quarter-over-quarter increase in non-interest income, owing to strong fee income, foreign exchange income, and a capital gain of PKR 2.2 billion on securities.

Should investors be worried about BAFL’s rising expenses?

The report noted a 23% year-over-year and 6% quarter-over-quarter increase in non-markup expenses, largely due to inflationary pressures and increased branch-related costs. 

This led to a higher cost-to-income ratio, which rose to 47% from 43% in the same period last year.

Additionally, the bank recorded a provision of PKR 1.5 billion in 2QCY24, a significant increase from a reversal of PKR 0.1 billion in the previous quarter, indicating a conservative approach by the bank in preparing for potential future uncertainties.

How attractive is the dividend yield?

The bank declared a cash dividend of PKR 2.0 per share, consistent with the previous quarter but down from PKR 3.0 per share a year ago. For the first half of 2024, the total dividend stands at PKR 4.0 per share, a 33% year-over-year increase. 

While this consistency is positive, the modest yield may not be enough for all investors, especially those seeking high returns.

Is now the right time to invest in BAFL?

The bank’s strong profit growth and healthy dividend payout indicate stability. However, rising expenses and increased provisions are concerning factors that could impact future profitability.

Investors should consider these aspects based on their risk tolerance and investment goals. For those with a long-term perspective focused on capital growth, BAFL may offer potential. However, risk-averse investors might prefer to wait for clearer signs of sustained growth.