released its H1’17 result, reporting weaker top and bottom line performances. With Gross Earnings up 2% q/q to N39 billion in Q2’17, the top line came in just in line with our estimate albeit down 12% y/y. Whilst Interest Income rose 3% y/y to N62 billion – in line with our estimate, Non Interest Income was down 50% to N12.9 billion – lagging our N16.2 billion estimate.
We recall that Non-Interest Income had been bolstered in H1’16 by FX revaluation gains, following the currency devaluation in June 2016. The relatively flat Interest Income bucks the trend observed across other banks within our coverage that have released H1’17 result so far, with Interest Income up by an average 34% amidst the high interest rate environment.
We are of the opinion that FCMB
must have struggled to reprice a significant portion of its credit portfolio. Despite the flat Interest Income, Interest Expense continues to rise, up 24%
y/y and 7% ahead of our estimate. On a positive note however, Loan Loss Expense moderated 26% y/y to ?10.0 billion – 18% better than our ?12.1 billion estimate – having come in relatively flat q/q amidst a N2.3 billion provision write back. With this, Operating Income was down 28% y/y to N35.4 billion.
Furthermore, despite a modest 3% moderation in Operating Expense to N31.7 billion vs. our N33.0 billion estimate, PBT came in 77% lower y/y at N3.7 billion – 28% weaker than our
estimate. Overall, bottom line came in largely flat q/q, albeit down 81% y/y to N3.0 billion - 34% behind our N4.6 billion estimate.
TP revised to ?2.93 (Previous: ?3.04)
In line with management’s guidance, we forecast a 3% y/y moderation in loan portfolio for FY’17 (Previous: 5% growth) as the bank continues to take a more cautious credit growth strategy due to high risk environment. We highlight that Interest cost burden and weak top line pressure continued to weigh on earnings in Q2’17.
Consequently, we expect the trend to persist in H2’17. Hence, we cut our Gross Earnings forecast to N153 billion (Previous: N157 billion). Amidst constrained Interest Income, we expect Interest Expense to further pressure margins and estimate a Net Interest Margin of
7.3% for FY’17 (H1’17: 7.5% vs. H1’16: 8.7%).
However, we revise our loan loss provision forecast lower to N21.3 billion (Previous: N24.3 billion) – translating to 3.3% Cost of Risk. Similarly, we expect Operating Expense to remain contained in H2’17 and estimate an expense of N63.8 billion for FY’17. Despite the moderation, our Cost to Income ratio is relatively weaker at 67% (FY’16: 56%). Overall, we forecast a PAT of N9.0 billion (Previous: N9.1 billion; FY’16: N14.3 billion) for FY’17–
translating to an EPS of N0.45.
Despite the weak earnings outlook for FY’17, we are optimistic about FCMB’s medium to long term outlook. We believe the stock is largely undervalued. FCMB
trades at an FY’17 P/E and P/B of 2.8x and 0.1x vs. our coverage banks’ average of 4.8x and 0.8x respectively.
reporting for easykobo.com on Thursday, Aug 3 2017 from Lagos, Nigeria
Source - analysts at Vetiva Capital Management Ltd in Victoria Island, Lagos
NOTE - ALL VIEWS, OPINIONS, TARGETS AND FORECASTS MADE IN THIS ARTICLE ARE THOSE OF ANLYSTS AT VETIVA CAPITAL MANAGEMENT LTD IN VICTORIA ISLAND, LAGOS. EASYKOBO DOES NOT ENDORSE OR OPPOSE ANY VIEWS/OPINIONS EXPRESSED IN THIS ARTICLE.