Equity Group Holdings (EQTY): FY25 Earnings Quality and Regional Expansion Case

Business Snapshot

Equity Group Holdings (EQTY) has cemented its position as East Africa’s most diversified financial services franchise, with a business model built on three pillars: regional scale, digital-first distribution, and ecosystem integration. The group’s pan-African footprint now accounts for nearly 50% of group profitability, with Democratic Republic of Congo, Uganda, and Tanzania emerging as primary growth engines. This diversification mitigates single-market risks and provides multiple levers for revenue expansion.

The digital ecosystem remains a strategic moat. Over 88% of transactions now flow through digital channels, reducing branch-level cost structures while enhancing customer stickiness. The group’s ability to monetize this ecosystem through fee-based income—particularly transaction fees and agency banking—has insulated it from the volatility of net interest margins. Management’s focus on non-banking segments, including insurance and wealth management, further diversifies revenue streams beyond traditional lending.

Financial Performance

FY25 results underscore a decisive breakout in earnings quality. Profit after tax surged 54.7% year-on-year to KES 75.55 billion, accelerating from the 32.2% growth recorded in FY24. Total operating income expanded 12.3% to KES 217.74 billion, driven by a 16.8% rise in net interest income to KES 126.94 billion and a 6.7% increase in non-funded income to KES 90.80 billion.

Net interest income growth was underpinned by a 29.8% decline in interest expense to KES 46.70 billion, reflecting the group’s strategic positioning in a declining yield environment. Interest income grew modestly at 2.0% to KES 173.64 billion, while the cost of funds compressed by 100 basis points to 3.1%. The net interest margin expanded to 7.2%, up from 6.5% in FY24, signaling improved asset-liability management.

Operational efficiency improved markedly. The cost-to-income ratio declined to 51.0% from 58.2%, a 720-basis-point improvement, driven by digitization, productivity gains, and tighter cost controls. Loan loss provisions fell 28.2% to KES 47.75 billion, with the cost of risk easing to 1.7%, the lowest level in five years.

The balance sheet expanded 9.2% to KES 1.97 trillion, with net loans up 7.7% to KES 882.46 billion and customer deposits growing 4.0% to KES 1.46 trillion. The group’s liquidity position strengthened, with the liquidity ratio rising to 64.7%, well above regulatory thresholds.

Valuation Lens

At the current price of KES 71.00, EQTY trades at a trailing P/E of 3.6x and a P/B of 0.9x, both materially below the five-year averages of 5.8x and 1.2x, respectively. The valuation discount reflects investor caution over asset quality risks that have lingered since FY23, despite the group’s demonstrated ability to manage credit costs.

Dividend sustainability appears robust. The board proposed a final dividend of KES 5.75 per share, bringing the full-year payout to KES 10.00 per share, a 35.3% increase from FY24. At the current share price, this implies a dividend yield of 14.1%, well above the sector median. The payout ratio of 53% is sustainable given the group’s improved earnings quality and strong cash generation.

On a price-to-book basis, EQTY is trading at a 25% discount to tangible book value, a level that historically has coincided with entry points for long-term investors. The group’s return on average equity of 27.2% underscores its ability to generate outsized returns on capital, even in a low-growth macro environment.

Risks

The primary risk remains asset quality deterioration in Kenya, where the gross NPL ratio stands at 20%, significantly above the group’s consolidated figure of 11.8%. Corporate loan portfolios, particularly in trade and real estate, remain under pressure from economic slowdown and currency depreciation. While provisions have declined, the potential for further deterioration in Kenya’s macroeconomic environment poses a downside risk to earnings.

Regional currency volatility remains a structural risk. The Kenyan shilling’s depreciation against the US dollar could erode the value of regional earnings when translated to KES, particularly in markets like Uganda and Tanzania where USD-denominated liabilities are significant. The group’s hedging strategies mitigate but do not eliminate this risk.

Interest rate sensitivity is another consideration. While the group has benefited from declining funding costs, a reversal in the monetary policy cycle—potentially triggered by prolonged Middle East conflicts—could compress net interest margins and increase provisioning requirements. The group’s exposure to government securities, which now account for 49% of the asset mix, also introduces duration risk.

Rates & Liquidity Context

The Central Bank of Kenya’s monetary policy has remained accommodative, with the CBR held at 10.5% since July 2025. T-bill yields have trended downward, with the 91-day paper yielding 11.8% as of April 2026, down from 13.2% at the start of the year. This environment has supported the group’s funding costs and allowed it to deploy excess liquidity into higher-yielding government securities.

EQTY’s liquidity position remains robust, with a loan-to-deposit ratio of 60.6%, providing ample headroom for credit expansion. The group’s ability to mobilize deposits at a lower cost than peers has been a key competitive advantage in this rate cycle. However, the compression in net interest margins suggests that further gains in funding efficiency will be incremental.

What To Watch

The dividend record date for the KES 5.75 final dividend is April 25, 2026, with payment scheduled for May 11, 2026. Investors should monitor the ex-dividend trading window for potential price action.

The group’s Q1 2026 trading update, due in mid-May, will provide early signals on whether the FY25 momentum has carried into the new financial year. Key metrics to watch include net interest margin trends, asset quality metrics, and regional profitability contributions.

Macroeconomic developments in Kenya and the DRC will remain critical. Any deterioration in sovereign credit ratings or further currency depreciation could impact investor sentiment. Conversely, signs of stabilization in asset quality or a dovish shift in monetary policy would likely trigger a re-rating of the stock.

Informational only, not investment advice.