VFD Group's Rocky Start to the Financial Year 2020

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Tuesday , May 19, 2020 / 7.00PM / VFD Group, Image Credit: Businessday


VFD group, a player in the financial service market ended the year 2020 on a strong note. Although the Group's Q1 2020 result was suggestive of a rocky start to the Year given that a few of the Group's numbers slipped downwards, Q2 performance indicate a potential turnaround of fortunes. The Gross Earnings grew significantly in 2019 by +132% due to a +94% growth in its interest income and +173% growth in Non-Interest Income.  However, the group's profit figure dropped by -27% between Q1 2019 and Q1 2020.


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Highlights

Taking A Note on Income

  • Gross earnings increased by 132% in 2019 FYE while the same is seen to have dropped to N529m from N594m a 27% decrease from Q1 2019 to Q1 2020
  • Interest income grew by 94% in 2019 FYE. This was due to disposal of a material stake in NEM. But the same has fallen by 11% from Q1 2019 to Q1 2020(This decline is traceable to declining yield in income environment of the market. Interest expense climbed by 63% in 2019 FYE while it dropped by 7% from Q1 2019 to Q1 2020.
  • Non-Interest Income which witnessed a 173% growth in the 2019 FYE has been seen fallen by 35% in Q1 2020 compared to Q1 2019, dropping from N1138m in Q1 2019 to N379 in Q1 2020.
  • Expenses for the group saw a rise of 155% from N754m in 2018 FYE to N1920m in 2019 FYE while an increase of 158% from Q1 2019 to Q1 2020 was recorded. This is due to increased Staff cost (continuous human capital capacity enhancement via strategic hires and promotions across the Group) and also increase in marketing cost, these are expected to have a telling positive impact on the group's performance in the coming years. N236m as of Q1 2019 to N609m Q1 2020. Interest expense fell by 7% from N317m to N293m. The fall in interest expense is attributable to the decline in the customers' deposit rate.
  • Profit margin which increased by 127% in the 2019 FYE from N547m in 2018 FYE to N1241m in 2019 FYE is believed to have been driven by efficient balance sheet Management, improved treasury management, increased, income-generating activity and effective deployment of cost optimization, strategy across the Group. This however dropped by 75% looking from Q1 2019 to Q1 2020.
  • Cost of fund for the group which shows an upward trend between 2017 FYE 6.78% to 9.49% in 2018 FYE has been falling from 9% in 2019FYE to 7.01% at the end of Q1 2020. 


Chart 1 VFD Group PAT movement between FY 2017 to Q1 2020 (N'bn)

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Source: VFD Group FY 2017- Q1 2020 Financial Statement


Getting Round the Statement of Financial Position

  • Total Assets of the company rose by over 132% on a Year on Year basis from N19048m in 2018 to N44237m in 2019 despite selling her stake in NEM late in 2018. However, the group's Total Asset has grown by 36% YTD Q1 2020
  • Property and Equipment was seen climbed by 32% on YoY basis between while it has grown 2% YTD Q1 2020
  • Cash and cash equivalents grew from N1133m in 2018 to N1416 by 2019 FYE, also, increased by 213% from N1461 to 4659 suggesting a strong liquidity position.
  • The group's total equity saw a sharp rise 0f 290% from N1535b to N5982 YoY 2018 -2019. In Q1 2020 YTD, Equity only moved up 2% from N5982b Year-End 2019 to N6096b Q12020. The implication of this rise may be seen in a reduced ROaE particularly if earnings would not grow at least at the same rate.


Chart 2 VFD Return on Asset FY 2017-Q1 2020


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Source: VFD Group FY 2017-Q1 2020 Financial Statement


Chart 3 VFD Return of Equity FY 2017-Q1 2020

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Source: VFD GroupFY2017- Q1 2020 Financial Statement


Rocky Start but Potential for Recovery Looks Promising

After what looked like a successful FY 2019 with an increase in PAT and Equity growing tremendously, it looks as if the 2020 FY doesn't appear too juicy for the group just yet. A number of key indicators ended in the negative territories. Gross earnings, PAT, Interest Income, and Non-interest income are all involved in the downward turn.

It is worthy to note that sales of a significant stake in NEM early in 2019 have had a huge impact on the VFD group earnings for the year. The growth in the PAT seen in FYE 2019 of 127% was driven by efficient balance sheet management, improved treasury control, increased income-generating activity and effective deployment of cost optimization strategy across the Group.

 

Although, the significant increase in OPEX contributed to a reduction in PAT, the OPEX rise could be justified by the potential increase in production capacity and operational efficiency.

The VFD group appears set to continue progress in the financial service industry through continuous innovation and resilience.  


Table 1 VFD Group 2020 Q2 Balance Sheet and P&L Guidance

 KEY BALANCE SHEET INDICIES

 N'000

 N'000

 Q1 2020 Actual

 Q2 2020 Forecast

TOTAL ASSET

  60,341.00

 

 61,111.00

BORROWINGS

  10,076.00

  10,282.00

TOTAL LIABILITIES

  54,244.00

  54,857.00

TOTAL EQUITY

    6,096.00

    6,254.00

TOTAL EQUITY AND LIABILITIES

  60,341.00

 

61,111.00

KEY INCOME STATEMENT INDICIES

 Q1 2020 Actual

 Q2 2020 Forecast

GROSS EARNINGS

    1,268.00

  

 1,917.00

INTEREST AND SIMILAR INCOMES

       529.00

    1,004.00

INTEREST AND SIMILAR EXPENSES

       293.00

     

 596.00

NET INTEREST INCOME

       235.00

     

 409.00

TOTAL NON-INTEREST INCOME

       739.00

  

 1,515.00

OPERATING EXPENSES

       609.00

   

1,212.00

 

PBT

       289.00

    

  553.00

Source: VFD Group Q1 2020 Financial Statement


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Related to VFD Group

  1. Abbey Strategic Deal With VFD to Facilitate Bank's Growth Plan, Shareholders' Value - Feb 26, 2020
  2. ABBEYBDS Lists Additional 2.26bn Shares Offered By Way of Placement to VFD Group Plc - Feb 06, 2020
  3. VFD Group Q3 2019 Results: Resisting Economic Headwinds - Nov 01, 2019
  4. VFD Group Sells Stake in NEM Insurance - Jan 14, 2019
  5. VFD Group Achieves 175% Subscription on Debt Note Offer - Feb 28, 2018
  6. The National Association of Securities Dealers (NASD) OTC Market Report 2018

 

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