Tuesday, May 03, 2016 8:28 PM / ARM Research
First City Monument Bank Group Plc. (FCMB) reported a 12% YoY decline in gross earnings to N34.6 billion for Q1 2016. Largely reflecting an upswing in loan loss provisions, PBT and PAT for the period declined 61% and 69% YoY to N2.2 billion and N1.6 billion respectively.
Deterioration in O&G and consumer lending book drives higher loan loss provisions: After a relatively ‘quiet’ Q4 15, when FCMB booked loan recoveries, loan loss provisions jumped 68% YoY to N3.5 billion. The rise in loan loss provisions places annualized cost of risk for Q1 16 50bps above FCMB’s 2% guidance at the FY 15 earnings call where management noted that weakness in the economic landscape would keep provisioning levels elevated.
FCMB links the uptick to the impact of delayed salary payments in the public sector on consumer loan segment (2015: 22% of loans) and issues around O&G (2015: 24% of loans).
Contraction in balance sheet and lower yield environment hurt NII: In response to the weak macro-environment, FCMB has scaled back on risk asset creation, with balance sheet assets contracting for the third consecutive quarter (-2% QoQ). The cutback aided by the lower asset yields (a fall-out of the low rate environment over much of Q1 16) offset improved funding costs over the period (WACF: QoQ: -60bps, YoY: -140bps) resulting in net interest income declining (QoQ: -21%, YoY:-5%) to N17.2 billion.
FX trading curbs weigh on NIR: As with the rest of the coverage banks to have reported thus far, except Diamond, FCMB reported lower non-interest revenues (-19% YoY, -17% QoQ to N5.1 billion). Parsing through breakdowns, NIR slowdown for FCMB largely reflects declines in FX gains (-39% YoY to N1.6 billion).
Following cumulatively weaker earnings over the last four quarters, inclusive of the N6 billion loss in Q4 15, FCMB’s currently trades at P/E 17.2x which as is at premium to peers though current P/B of 0.1x is unchanged from prior and in line. Last trading price of N1 is at sizable discount to our last communicated FVE N1.84 which translates to a BUY recommendation on the stock.
FCMB will be held a conference call today at 3pm Lagos time.