FCMB shares have shed -53% YTD, worse than the -11% return on NSEASI

Proshare

Wednesday, March 30, 2016 12:58PM /FBNQuest Research

Event: FCMB Group reports Q4 2015 results

Implications: Market’s reaction likely to be positive

Positives: Marked improvement in PBT and PAT on a sequential basis, thanks largely to recoveries

Negatives: Relative to expectations, no real negatives

This morning, the NSE published FCMB Holdings (FCMB) Q4 2015 results which showed that although PBT improved markedly to N5.2bn from the –N7.0bn loss that the bank reported in Q3, it still declined by -27% y/y. The y/y decline in PBT was driven by a -32% y/y reduction in profit before provision to N21.4bn.

Although the bank made recoveries of N254m and opex declined by -5% y/y respectively, the positives on both lines were not enough to offset the double digit y/y decrease in pre-provision profits. Despite a 2.8x expansion in other comprehensive income, PAT fell by a wider margin of -52% y/y (than that seen in PBT), because of a tax rebate of N750m in Q4 2014.

Further up the P&L, both revenue lines contributed to the weakness in pre-provision profits. However, funding income which was down by -35% y/y had a greater impact. On a sequential basis, the PBT and PAT of N5.2bn and 4.0bn were marked improvements over the pre-tax and after tax losses of -N7.0bn  and  -N6.2bn that the company reported in Q3 2015. Compared with our forecasts, both PBT and PAT came in well ahead of our estimates largely because the provisions line surprised positively. The revenue lines were not materially different from our expectations.

On a full year basis,  PBT and PAT fell by -68% y/y and -69% y/y respectively, largely driven by an -11% y/y decline in profit before provisions and a 41% y/y rise in provision for loan losses. However, given the extent of the positive surprise in Q4, PBT beat our forecast by 156%. The bank has proposed a dividend per share of N0.10 which implies a payout ratio of 28.4% and a yield of N12.5%. This is well ahead of our 4 kobo and should please the market.

FCMB’s results imply an ROAE of 4.3%, which is the lowest amongst the banks that we cover. Despite the relatively better results in Q4 relative to Q3 2015, we would expect that the y/y decline on the revenue lines, particularly the funding income line would be one of the focal points of discussions on the bank’s conference call. Despite recoveries of N254m in Q4, impairment charges of N15.0bn for the full year is still indicative of asset quality issues. We also expect this to be on the mind of investors during the call.  

Given the positive surprise in the results relative to consensus forecasts, and the implied dividend yield of 12.5%, we expect to see a rally in the shares in coming days. At current levels, on our published estimates, FCMB is trading on a 2016E P/B multiple of 0.2x for 2.5% ROAE in 2017E. The shares have shed -53% ytd, worse than the -11% return on the All Share Index. We rate the shares Underperform. Our estimates are under review

FCMB Group Q4 2015 results vs. FBNQuest estimates 



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2.      FCMB is Maintaining Underperform Rating on Weak Outlook

3.      FCMB Records N7bn Pre-tax Loss in Q3 15 on the back of Significant Loan Loss Provisions

4.      FCMB Records 84 Decline in PBT in Q3 15 result SP N0.98k

5.      FCMB Group PLC issues a technical profit warning

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