Friday, April 29, 2016 4:16PM/ FBNQuest Research
Event: FCMB Group reports Q1 2016 results
Implications: Likely downward revision to consensus 2016 PBT estimate; market’s reaction likely to be negative
Positives: Funding income grew 13% q/q
Negatives: PBT and PAT fell by 62% q/q and 93% q/q respectively due to a y/y spike in provisions
This afternoon, the NSE published FCMB Holdings (FCMB) Q1 2016 results which showed that PAT declined by 93% y/y to N420m. The key drivers of the y/y decline on the bottom line were a 9% y/y reduction in profit before provision and a 68% y/y spike in loan loss provisions. Further down the P&L, a 14% y/y rise in income tax expense and a negative result of N1.3bn in other comprehensive income (vs. +N657m in Q1 2015) resulted in PAT declining by 93% y/y.
Moving back to pre-provision profit, although both revenue lines contributed to the weakness on this line, non-interest income which fell -19% y/y was the weaker of the two. Funding income declined by -5% y/y.
Sequentially, profit before provisions grew by 4% q/q, underpinned by a 13% q/q growth in funding income. Similar to the y/y trends, the other income line declined by 17% q/q. However, PBT and PAT fell by 58% q/q and 90% q/q respectively, due to the impairment charge of –N3.5bn (vs recoveries of N252m in Q4 2015).
Compared with our estimates, PBT missed by 49% because of the negative surprises on the provisions and other income lines. However, PAT missed by a much wider margin of 89% largely on the back of the negative result on the other comprehensive income line.
Although FCMB’s Q3 2015 result were weighed down by significant provisions of about N11.5bn, net recoveries of N254m made by the bank in Q4 2015 suggested that the bank was making gradual progress with initiatives aimed at addressing asset quality issues. However, the Q1 results imply that the issues are still lingering.
When annualised the N3.5bn provisions charge in Q1 implies a cost of risk of 2.4% (vs. 1.4% in Q1 2015). At this point, we believe that issues with sourcing fx, which has typically hurt trade finance activities and a slow-down in capital market related activities due to prevailing macro headwinds. were responsible for the weakness on the other income line.
Management had not given specific guidance on earnings for 2016. The bank’s Q1 2016 PBT of N2.2bn tracks behind consensus 2016 PBT forecast of N10.0bn (which we find slightly aggressive). As such, we expect to see marked downward revisions to consensus PBT forecast, and also expect to see a negative reaction from the market.
At current levels, on our published estimates, FCMB is trading on a 2016E P/B multiple of 0.1x for 4.3% ROAE in 2017E. The shares have shed -39.6% ytd, worse than the -12.8% return on the All Share Index.
We rate the shares Underperform. Our estimates are under review.
Conference call details: Tuesday, May 3, 2016. Time 1500 Lagos/London, 1000 New York, 1600 Johannesburg. Dial in details yet to be circulated
FCMB Group Q1 2016 results vs. FBNQuest estimates
Source: Company data, FBNQuest Research estimates