Oct 23, 2017 2:53PM/ FBNQuest
Event: Fidelity Bank reports Q2 2017 results
Implications: Upward revisions to consensus earnings forecast expected
Positives: PBT and PAT grew by 63% y/y and 255% y/y respectively, driven by non-interest income and y/y declines in opex and provisions
Negatives: No obvious negatives.
This afternoon, Fidelity Bank (Fidelity) published its Q3 2017 results which showed marked y/y growth on all key headline items. Although pre-provision profits grew by single-digits (4%) y/y, PBT advanced by 63% y/y to N6.0bn. The key drivers behind the strong growth in PBT were a -21% y/y decline in loan loss provisions and a -4.0% y/y decline in opex. Moving back to pre-provision profits, the non-interest income line which grew by 24% y/y was the key driver behind the single-digit growth. The growth in non-interest income was mainly underpinned by net fx gains of N2.3bn (compared with a N1.7bn in Q3 2016). As for funding income, it came in flattish y/y. Further down the P&L, PAT grew by 255% y/y, thanks to a -55% y/y reduction in other comprehensive expense.
Sequentially, PBT was up 12% q/q, thanks to a -38% q/q decline in loan loss provisions. Although funding income was up by 5% q/q, a -23% q/q reduction in non-interest income led to a 3% q/q decline in pre-provision profits. Despite the growth in PBT, PAT fell by -42% q/q because of a negative result of -N917 in other comprehensive income (OCI) compared with +N3.0bn in Q2 2017. Compared with our forecasts, PBT and PAT beat by 165% and 133% respectively, due to positive surprises in funding income and opex. Non-interest income beat our forecast by around 5%.
When annualised, Fidelity Bank’s loan impairment charges for 9M 2017 imply a cost-of-risk of 1.3%. This is slightly higher than the 1.0% guidance provided by management on its H1 2017 conference call. Although we expect this to generate some questions from investors on the bank’s conference call, which is billed to hold on Wednesday, we believe the strong earnings will more than compensate.
Fidelity’s 9M 2017 PBT of N16.2bn is already ahead of consensus 2017 PBT forecast of N14.2bn. As such, we expect to see marked upward revisions to consensus earnings forecast.
Although Fidelity Bank shares are up 71.4% ytd compared with the +36.1% return on the index, we still expect to see a positive reaction from the market on the back of the strong set of results.
We rate Fidelity shares Neutral. Our estimates are under review.
Fidelity Bank Q3 2017
results: actual vs. FBNQuest Research estimates (N millions)
Source: NSE; FBNQuest Estimates
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