Snapshot:
1) Earnings beat estimates – PAT up 14% y/y
2) Impressive E-biz income boosts Non-Interest Income line
3) Loan loss provision revised lower to reflect H1’18 run rate
4) Target Price raised to N13.53 (Previous: N12.84)
Q2’18 recovers on stronger Non-Interest Income, PAT up 27% q/q
01 Aug 2018 ( Lagos ): FBNH released its H1’18 results, reporting an improvement on the unconvincing start from Q1’18. Top and bottom line both came in ahead of analyst's estimates with the PAT deviation even more pronounced. Whilst Interest Income moderated 3% y/y to N225 billion (much in line with analyst's estimate), Non-Interest Income came in strong – up 21% y/y to N61.3 billion (Vetiva Analyst’s: N50.5 billion) following a notable 59% q/q rise in Q2’18.
Consequently, Gross Earnings rose mildly by 2% y/y to N293 billion (Vetiva Analyst’s: N275 billion) following an 11% q/q rise in the top line. Analysts highlight that despite the improvement in general business environment in Q2’18, loan book moderated 3% q/q within the period (Ytd: -7%), an observation that is consistent across all the banks that have released H1’18 results so far. Notably, management attributed the strong growth in Non-Interest Income to growing income from their digital banking channels. The income line now accounts for c.24% of Non-Interest Income vs. c.13% as at FY’16.
Furthermore, amidst a mild 1% q/q growth in Customer Deposits as well as a mild uptick in interest rates in Q2’18 (OBB rate average of 14.1% vs. Q1’18: 11.3%), Interest Expense rose 16% q/q – pushing the expense line 11% higher y/y for H1’18 and 7% ahead of analyst's estimate. The increasing risk focus of the bank appears to be paying off amidst the improving macroeconomy.
Particularly, loan loss provision moderated 15% y/y to N52.8 billion – coming in better than analyst's N60.4 billion expectation and translating to an annualized cost of risk of 4.7%. With this, Operating Income rose 4% y/y to N158 billion – 10% ahead of analyst's N144 billion estimate.
However, despite a 16% q/q rise in Operating Expenses - bloated by the annual AMCON charge, the expense line was contained to a mild 2% y/y rise to N119 billion for the half year period. Consequently, PBT rose 9% y/y to N38.9 billion, beating analyst's N30.3 billion estimate. Overall, PAT rose 14% y/y to N33.5 billion – ahead of analyst's N25.5 billion estimate.
TP revised to N13.53 (Previous: N12.82)
Following better than expected performance in Q2’18, analysts have revised their estimates across most of the line items. Although they cut their loan growth estimate to -2% (Previous: 3%) and raise their average yield on asset estimate to reflect their expectation for H2’18, their Interest Income estimate remains largely unchanged. That said, analysts raise their Non-Interest Income forecast to reflect the stronger growth in H1’18 and maintain the run rate for the second half of the year.
Also, analysts raise their Interest Expense following the miss in H1’18. More notably, they cut their loan loss provision to N102 billion (Previous: N121 billion) following H1’18 trend – translating to a cost of risk of 5.2%. Analysts also revise their Operating Expense estimate higher to reflect the miss in H1’18. Overall, they revise analyst's PAT estimate higher to N79.3 billion for FY’18 – translating to an EPS of N2.21. Consequently, analyst's Target Price (TP) is raised to N13.53 (Previous: N12.82). FBNH trades at FY’18 P/B and P/E ratios of 0.5x and 4.5x vs. Tier I averages of 0.8x and 4.7x respectively.
Business Description
First Bank of Nigeria Holdings (FBNH) PLC is the second largest financial services group in Nigeria. FBNH is structured under four business groups, namely: Commercial Banking, Investment Banking and Asset Management, Insurance, and Other Financial Services. FBNH’s principal bank subsidiary is First Bank of Nigeria (FirstBank), Nigeria’s largest commercial bank with operations in 7 countries.
Source: Olalekan Olabode, CFA from Vetiva Capital Management Limited
Reporting for EasyKobo on Wednesday, 1 July 2018 in Lagos, Nigeria