released its Q1’19 earnings, with top line trailing our estimate slightly while bottom line outperformed. While Gross Earnings fell short of our estimate by 9% (+4% y/y), PAT came in 16% higher than we expected (+40% y/y).
The top line miss was majorly driven by Non-Interest Income, which missed by 9%, declining 0.2% y/y to N 9.5 billion. This was due to a 90% decline in Foreign Exchange Income and a 61% decline in gains from revaluation of foreign currency assets. Meanwhile, Interest Income, which fell below our estimate by 3%, rose 5% y/y to N 34.4 billion despite a 3% drop in Loan Book to ?615.2 billion.
Net Interest Income came in line with our estimate, 5% higher y/y at N 18.6 billion. More importantly, the bank posted stronger than expected PBT growth, driven by a decline in loan loss provision, 46% below our estimate at N 2.3 billion. This was boosted by write-backs of N 2.1 billion, a 59% y/y increase.
As such, despite a 14% deviation in Operating Profit, PBT came in 3% higher than our estimate at N 4.3 billion. Overall, PAT outperformed our estimate by 14%, coming in at N 3.6 billion, due to a lower effective tax rate of 15.8% (Vetiva estimate: 22.9%).
TP revised marginally higher to N 2.94 (Previous: N 2.87)
Analysts at Vetiva Capital Management Ltd in Victoria Island have revised their estimates to reflect the deviation in Q1 numbers across key line items. With the stronger than expected moderation in provisioning, we revise our loan loss forecast to N12.5 billion for FY’19 (Previous: N 13.9 billion).
We also revised lower our interest income growth estimate to 10% for FY’19 (Previous: 12%). Following this, we lowered our Interest Expense forecast lower to N64.9 billion (Previous: N66.0 billion) Finally, we lowered our effective tax rate to 18.8%, in line with the average rate of the previous financial year. Consequently, we estimate an Operating Income of N128.3
billion for FY’19.
Furthermore, we slightly revised our Operating Expenses estimate to N93.2 billion (Previous: N97.7 billion). We also maintain a dividend of N 0.18 per share for FY’19 (payout ratio of 19.5%). We revise our target price higher, albeit marginally to N2.94 (Previous: N2.87) and reiterate our BUY recommendation on the stock.
remain optimistic about the medium to long term outlook on
FCMB and believe the stock remains largely undervalued.
FCMB trades at an FY’19 P/E and P/B of 4.0x and 0.2x vs our
coverage banks’ averages of 5.9x and 0.9x respectively.