May 3 (Lagos) - FCMB
released its Q1’17 result, reporting weaker than expected top and bottom line performances. Although Gross Earnings rose 12% y/y to ?38 billion, the top line performance came in 7% behind our ?41 billion estimate.
The deviation from estimate was driven by the lower than expected Interest and Non-Interest Income – both missing our estimates by 8% and 16% respectively. Amidst constrained top line performance, Interest Expense pressure persisted, up 26% y/y and 6% ahead of estimates of analysts at Vetiva Capital Management Ltd in Victoria Island, Lagos.
Consequently, Net-Interest Income moderated 9% y/y to ?15.5 billion – 18% behind our ?18.9 billion estimate. Furthermore, amidst a better than expected loan loss provision (?5.0 billion vs. Vetiva estimate of ?5.2 billion), Operating Income came in weaker, down 3% y/y and 20% behind our estimate.
Also, despite the mild y/y moderation in Operating Expense to ?16.3 billion vs. our ?17.0 billion estimate, PBT came in 10% lower y/y at ?2.0 billion – 66% weaker than our ?5.8 billion estimate. Overall, bottom line bowed to pressure – coming in slightly lower than the dismal ?1.6 billion reported in the corresponding period of 2016 and 68% behind our ?5.0 billion estimate.
TP revised to ?3.04 (Previous: ?3.43)
Whilst we highlight the cost burden on the Interest Expense line – as elevated interest rate environment pressures Cost of Funds (CoF) – we note that the earnings miss was largely driven by weaker than expected Interest and NonInterest Income – an occurrence that deviated from the trend observed across other banking names.
With this, we have revised our Interest and Non-Interest estimates lower to reflect the earnings deviation. Also, we raise our Interest Expense to ?55.7 billion (Previous: ?53.9 billion).
Despite the flat loan book recorded thus far, we maintain our 5% real credit growth forecast for FY’17. With loan loss expense coming marginally lower than our estimate, we cut our FY’17 provisioning to ?24.3 billion (Previous: ?25.8 billion) – translating to a Cost of Risk of 3.6%. Amidst a flat OPEX forecast, we estimate a Cost to Income Ratio of 65% for FY’17 (Previous: 64%). Overall, we forecast a PAT of ?9.1 billion (Previous: ?14.8 billion) for FY’17–
translating to an EPS of ?0.46. FCMB
trades at an FY’17 P/E and P/B of 1.1x
reporting for easykobo.com on Wednesday, May 3 2017 from Lagos, Nigeria
Source - analysts at Vetiva Capital Management Limited
Note - All views, opinions, forecasts and targets expressed in this article are those of analysts at vetiva Capital Management Limited in Victoria Island, Lagos. Easykobo does not endorse or oppose any views/opinions expressed in this article.
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