| Stock & Analyst Updates |    938 VIEWS  |
| Stock & Analyst Updates | |
| 938 VIEWS | |
 |
Monday,
April 06, 2020 / 11:45 AM / By FBNQuest Research / Header
Image Credit: Independent
15% increase to our 2020-21E EPS forecasts
FCMB's management did not provide an earnings or ROAE guidance for 2020
on its Q4 2019 conference call. However, it acknowledged that near-term
macroeconomic challenges arising from the COVID-19 pandemic and the sharp drop
in crude oil prices will exert downward pressure on key revenue lines,
particularly trade finance and transaction commissions.
Also, the subdued oil pricing environment is likely to have a negative
impact on asset quality, particularly from its oil and gas upstream &
midstream exposure which accounts for 22.3% of its loan book. Against this
backdrop, management expects that c.10% of its total loan book (and c.50% of
its oil and gas upstream exposure) will be restructured via tenor extension and
moratoriums and other policy measures of the CBN.
On a worst-case scenario - oil price at US$30 per barrel and a 40%
devaluation of the naira, management sees the bank's NPL ratio doubling to c7%
but <8%. Despite the challenging outlook, we have increased our 2020-21E EPS
forecasts by 15% on average due to the positive earnings surprise relative to
ours in Q4 2019. Our new price target of N3.05 is also 14% higher. Our new
forecasts imply a -15% y/y decline in the bank's 2020E PBT to N17.2bn and a
340bp reduction in ROAE to 7.1%.
Regardless of the sizable upside potential of 108% implied by our price
target, we retain our Neutral rating on the shares because we believe that the
bank has a lower capacity to withstand macroeconomic shocks relative to its
peers. This is reflected in its capital ratio, which is only 220bps higher than
the regulatory minimum vs. an average of 21.2% for our coverage universe.
Q4 PBT up by strong double-digits y/y
FCMB's Q4 PBT grew handsomely by 99% y/y to N7.3bn. The key drivers were
a 39% y/y reduction in opex and a 6% y/y increase in pre-provision profit. The
growth in pre-provision profit was underpinned by a 16% y/y increase in
non-interest income. Funding income growth was more modest at 2% y/y.
Thanks to a positive result of N6.2bn in other comprehensive income vs. -N5.3bn in Q4 2018, PAT grew to N12.7bn compared with an after-tax loss of -N1.7bn in Q4 2018. Sequentially, PBT advanced by 84% q/q, on the back of a
-42% q/q reduction in opex.
Also PAT improved markedly to N12.7bn compared with the after-tax loss
of -N1.0bn that the company reported in Q3 2019. Relative to our forecasts, PBT
and PAT beat by a significant margin because of positive surprises in opex and
OCI.
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