Wednesday, April 27, 2016 8:42AM/ CardinalStone Research
FBN Holdings Plc (FBNH) released its FY'15 and Q1'16 results on the Nigerian Stock Exchange (NSE) today, reporting a decline of 82.0% and 8.1% in annualized EPS to
N0.43 and N0.57 in FY'15 and Q1'16 respectively. Please find attached the full results as released on the NSE and see key highlights below;
· Gross earnings grew by 3.9% YoY in FY'15 but declined by 15.2% in Q1'16.
· Loan loss provisioning increased markedly by 360.0% and 212.5% YoY in FY'15 and Q1'16 respectively.
· Overall, FY earnings significantly underperformed consensus estimate
Growth in Interest Income and Non-Interest Income provides boost to topline
FBNH's FY 2015 gross earnings was exactly in line with our expectation (0% deviation). Gross earnings grew by 3.9% for FY 2015 driven primarily by a 9.3% rise in interest income as non-interest income dipped by c.14% as a result of weak FX trading income and reduction in COT.
With a decline of 16.6% in net loans for the FY'15, we surmise that the growth in interest income was driven primarily by higher asset yields as treasury securities offered mid-to-high yield until Q4 when the bench mark interest rate was lowered and yields on government bonds dropped - leading to trading gains.
In Q1 2016 however, we saw marked weakness in revenue as gross earnings declined by 15.2% - on the back of the 12.4% and 25.3% fall in interest and non-interest income respectively. In line with the pattern observed for peers, interest expense declined by 45.2% - an impact of the November reduction in Monetary Policy Rate (MPR) on cost of funds (interest rate in savings account is 30% of MPR).
At 21.5%, NPL ratio at an all time high
As expected (following the profit warning issued by the group), the modest rise in gross earnings failed to trickle to bottom-line, on account of enormous impairment charges on loans. In FY 2015, FBNH's impairment charge rose by 360.0% YoY and 203.0% QoQ.
The same pattern continued in Q1, as credit loss charges grew by 212.5% YoY; hence the group's non-performing loan (NPL) ratio is at a 10-year high of 21%. Relative to Q4, impairment losses actually declined by 82.0% which may imply that the group embarked on significant book cleaning in FY'15.
Given the weakness in macroeconomic fundamentals, there's a high likelihood of a further rise in impairment losses in the course of the year. With the whooping rise in impairment, FBNH's after tax earnings plunged by 82.0% in FY, implying a ROE of 2.7%. Moreover, as at Q1, the group's ROE had improved to 14.4%.
OPEX down in Q1...early signs of management's restructuring?
In line with our expectation of improved efficiency as the new management strives to reposition FBNH for better performance, operating expenses declined by 11.8% YoY. On a QoQ basis, operating expenses fell by 6.3%.
The fall in operating expenses saw the group's Cost to Income ratio improve quite commendably, to 59.4% in Q1'16 from 65.1% in Q1'16. As one of the strategic thrusts to reposition the bank for efficiency and growth in profitability, we believe the push to improve efficiency and drive costs lower will continue throughout the year.
Valuation under review, pending details from conference call
Our last TP (
N5.07) for FBNH has been placed under review pending additional details from the group's conference call tomorrow on the drivers of performance and outlook. Justified by the its weak FY 2015 performance, FBNH is trading at a forward P/B of 0.3x versus peer average of 0.5x.