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FCMB Group Plc - Non-Interest Income Grew by 49% YoY in Q1 2017

Proshare

Friday, April 28, 2017/ 8:30AM / FBNQuest Research

Event: FCMB Group reports Q1 2017 results
Implications
: Negative reaction from the market and downward revisions to consensus 2017E PBT forecasts likely
Positives: Non-interest income grew by 49% y/y; other comprehensive income grew to N537m from –N1.2bn in Q1 2016
Negatives: Provisions grew by 40% y/y while funding income declined by 9% y/y 

This afternoon the NSE published FCMB Holdings’ (FCMB) Q1 2017 results which showed that although PBT declined by 10% y/y to N2.0bn, PAT grew by 405% y/y to N2.1bn.

The key driver behind the marked growth in PAT was a positive result of N537m on the other comprehensive income (OCI) line compared with a loss of –N1.2bn in Q1 2016. Further up the P&L, pre-provision profits grew modestly by 4% y/y.  

However, a 40% y/y rise in loan loss provisions proved significant and completely offset the modest growth in pre-provision profits. Apart from the spike in provisions, the decline in PBT was also underpinned by a 9% reduction in funding income. In contrast, non-interest income grew by  49% y/y.  

Sequentially, PBT declined by 4% q/q. Again, funding income which declined by 5% q/q and provision for loan losses which was up by 384% q/q were the key drivers behind the reduction in PBT on a q/q basis. Compared with our forecasts, PBT and PAT missed by 34% and 17% respectively, mainly due to negative surprises in provision for loan losses and funding income. 

Despite the marked y/y growth in PAT, we believe that the funding income line and loan loss provisions will come under scrutiny on the bank’s conference call which is billed to hold next week Wednesday. When annualised, FCMB’s loan loss provisions imply a cost-of-risk of 3.0%, in line with management’s guidance for the full year. 

Given the risk of potential deterioration in asset quality through the year, the high provisioning levels in Q1 may imply that the ratio could exceed management’s guidance for the full year. FCMB’s results imply an annualised ROAE of around 4.7%, far below its cost of equity and one of the lowest in our coverage universe. 

The bank’s Q1 PBT tracks behind consensus PBT forecast of N14.3bn for 2017. As such, we expect to see a negative reaction from the market and downward revisions to consensus 2017 PBT forecast.  FCMB shares have underperformed the market year to date. The shares have shed -8.2% ytd compared with a -4.0% return  on the All Share Index. 

We rate the shares Neutral. Our estimates are under review.

 FCMB Group Q1 2017 results: actual vs. FBNQuest Research estimates (N millions)

 

Q1 2017

 

Actual

Y/y

Q/q

FBN   Quest est.

Actual vs FBN Quest est. (%)

Interest income

29,861

4.8%

-6.3%

31,147

-4.1%

Interest expense

-14,323

26.2%

-7.8%

-15,084

-5.0%

Net interest income

15,538

-9.4%

-4.9%

16,063

-3.3%

Other income

7,580

48.8%

157.8%

6,646

14.1%

Profit before provisions

23,118

3.9%

19.9%

22,709

1.8%

Provisions

-4,958

40.4%

383.6%

-3,470

42.9%

Operating expenses

-16,251

-1.6%

-1.2%

-16,233

0.1%

Assocs

75

n/a

-72.4%

0

n/a

PBT

1,984

-10.1%

-4.4%

3,005

-34.0%

Tax

-403

-28.3%

-43.9%

-451

-10.6%

-Tax rate

20.3%

 

 

15.0%

 

Discontinued ops

 

n/a

n/a

0

n/a

Other comprehensive inc.

537

n/a

-79.6%

0

n/a

PAT after minority interest

2,118

404.9%

-47.0%

2,554

-17.1%

 

Related News

 

1.       FCMB Declares N1.58bn Profit in Q1 2017 Results, (SP:N1.01k)

2.      FCMB Group Reports Q4 2016 Results - OCI Grew by 132% YoY to N2.6bn

3.      FCMB Declares N14.34 bn Profit in 2016 Audited Results, (SP:N0.87k)

4.      FCMB Group Announces Leadership Changes; Ladi Balogun to Emerge Group CEO

5.      FCMB Group Records 168% Growth in Non-Interest Income in Q3'16 Results Due to FX Gains

6.      FCMB Declares N12.98 bn Profit in Q3'16 Results, (SP:N1.05k)

7.      FCMB Group Loan Loss Provisions Spike by 506 YoY to N10bn in Q2 16

8.     FCMB Declares N15.67bn Profit in Q2 16 Result SP N1.41k

9.      FCMB Plc - Elevated Provisioning Underpins a Difficult Start to 2016

10.  FCMB Funding Income Grows by 13 QoQ in Q1 16 Results

11.   FCMB Declares N1.65bn Profit in Q1’16 Result, (SP:1.02k)

12.  FCMB is Upgraded to Neutral after Marked Sell-off

13.  FCMB Q4'15 Conference Call & Earnings Presentation: The key takeaways

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