Fidelity Bank Plc Grew PBT by 21% YoY in Q1 2017


Thursday, April 27, 2017/ 11:18 AM / FBNQuest Research                                                           

Event: Fidelity Bank reports Q1 2017 results

Implications: Market reaction likely to be neutral

Positives: PBT grew 21% y/y, came in 16% higher than our forecast

Negatives: Non-interest income was down by 28% y/y

This morning Fidelity Bank (Fidelity) published its Q1 2017 results which showed that PAT grew markedly by 4,584% y/y to NN3.3bn. The key driver of the remarkable growth in PAT was a 71% y/y reduction in other comprehensive losses to –N1.0bn compared with -N3.5bn in the corresponding period in 2016.  

Further up the P&L, although pre-provision profits declined by 4.0% y/y, PBT grew by 21% y/y, thanks to a -10% y/y reduction in opex. Although the decline in profit before provisions was mainly underpinned by a 28% y/y reduction in non-interest income, growth on the funding income line was modest at 3% y/y.  

On a sequential basis, PBT and PAT grew markedly, by 296% q/q and 119% q/q respectively, mainly driven by a 22% q/q reduction in opex. While funding income grew by 45% q/q, this was completely offset by a 62% q/q decrease in non-interest income and resulted in a 2% q/q reduction in pre-provision profits. Compared with our forecasts, PBT beat by 16%, mainly due to positive surprises in opex and loan loss provisions.   

Although management guided to a 1.0% cost of risk for 2017 on its 2016 conference call, we would not make much of the provisions number for Q1 (implied annualised cost of risk of 0.5%) because we believe the Q1 quarter is a best foot forward one. We note that Fidelity’s cost of risk for Q1 2016 was also similar at around 0.5% while the full year figure came in at 1.5%.  

We believe that going forward, opex growth will most likely follow the same path as provisions i.e. trend higher through the following quarters. Focusing on the underlying performance, we expect the non-interest income line to come under scrutiny given how weak the result was, and the fact that these are normalised (devoid of one-off fx gains).  

In addition, Fidelity appears not to be seeing a resurgence in funding income on the back of 20%+ yields on fixed income portfolios which two others banks which have reported Q1 2017 results benefited from.       

Although Fidelity Bank’s Q1 PBT tracks ahead of consensus PBT forecast of N15.1bn,  we expect to see a neutral reaction from the market given that pre-provision profits declined -4.0% y/y.  

Year to date, Fidelity Bank shares have outperformed the index slightly. The shares are down -1.2% compared with a -4.7% return on the index.  

We rate Fidelity shares Underperform. Our estimates are under review.  

Fidelity Bank Q1 2017 results: actual vs. FBNQuest Research estimates (N millions) 



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