Friday, April 12, 2019 / 03:56PM / NSE With Additional Comments from CardinalStone Research
Initial Reaction – CardinalStone Research
FBN Holdings Plc (FBNH) FY’18 results – gross earnings declined by 2.9% YoY to N566.1 billion, in line with our expectation of N568.5 billion (-0.4% deviation). In contrast, after tax earnings grew by 31.4% YoY to N59.7 billion, ahead of our estimate of N56.4 billion. Like other banks within our coverage, FBNH’s earnings growth was bolstered by growth in non-interest income (+16.2% YoY) and much lower impairment expenses (-42.2% YoY).
FBNH proposed a final dividend of N0.26 per share. This translates to a dividend yield of 3.5% based on the last close price of N7.50.
• Interest income weakened to N96.9 billion (-13.6% QoQ), the lowest in at least eight (8) quarters. Both interest income from loans and advances (- 12.7% QoQ), and from investment securities (-15.5% QoQ) declined during the quarter.
• Non-interest income (+20.7% QoQ) recorded its best quarterly performance for the financial year, largely helped by a 38.4% growth in fees and commission income.
• Operating expenses rose 12.5% during the quarter to N76.5 billion. Consequently, cost to income ratio deteriorated by 110bps to 75.6%. Surprisingly, impairment charges dipped faster than we expected in Q4’18 to N10.7 billion (-54.1% QoQ).
• Net loans declined to N1.7 trillion (-15.9% YtD), while total assets and deposits rose to N5.6 trillion (+6.3% YtD) and N3.5 trillion (+10.9% YtD) respectively.
FBNH’s FY’18 performance is a clear depiction of the strategic route the bank has taken since it began to clean up its books three years ago. In fact, management noted that it has fully provided for the largest NPL in its loan book—Atlantic Energy. As a result, we highlight the jump in NPL ratio from 22.8% to 25.9%, also partly affected by the decline in loans and advances. We like the improvement in fees and commission income, largely driven by growth in e-product related and account maintenance fees. However, we note the 67.5% decline in credit fees which is unsurprising given 15.9% decline in loans and advances during the year. Efficiency remains a concern as cost-to-income further deteriorated during the year (FY’18 – 63.4%; FY’17 – 54.0%).
We will review our estimates after discussions with management on the result.
Visit FBN Holdings Plc IR Page in Proshare MARKETS
Graph– One Year Share Price Movement
1. FBNH Declares N44.89bn PAT in Q3 2018 Results,(SP:N9.40k)
9. FBNH Declares N14.8bn PAT in Q1 2018 Results, (SP:N12.45k)