26, 2017 /11:34AM / FBNQuest Research
avg. increase to our 2017-18E EPS forecast and price target
(Fidelity) Q3 2017 results came in ahead of our expectations for the third
quarter in a row. Opex and funding income in particular helped. Consequently,
we have cut our opex forecasts by 4% on average over the 2017-18E period and
raised our funding income forecasts by an average of 3% over the same period.
Following a higher-than-expected provisions run-rate over 9M 2017, management
raised its 2017E cost-of risk (COR) guidance to 1.25% (from 1.0%).
We are slightly
more conservative than management in our forecast. Fidelity is one of a few
banks that have grown their loan books this year. As such, we have raised our
2017E loan growth forecast to 7.5% (from 3.5%). Despite having reflected the
more expensive eurobond which the bank recently issued, the other positive
changes to our forecasts underpin a 19% average increase to our 2017-18E EPS
forecasts and our price target. Our new 2017E ROAE forecast of 8.9% (up from
7.5%) is still shy of management’s guidance of 10%, however.
Having gained 93%
ytd (vs. ASI 36%) our new price target implies a potential upside of 9.0% from
current levels. Combined with a forecast dividend yield of 10.9%, the implied
projected total return based on our valuation is 19.9%. We expect this to
support the stock. We retain our Neutral rating.
earnings growth in Q3; PAT up 255% y/y
2017 results showed marked y/y growth on all key headline items. Although
pre-provision profits grew by single-digits (4%) y/y, PBT advanced by 63% y/y
to N6.0bn. The key drivers behind the strong growth in PBT were a -21% y/y
decline in loan loss provisions and a -4.0% y/y decline in opex. Moving back to
pre-provision profits, the non-interest income line which grew by 24% y/y was
the key driver behind the single digit growth.
The growth in
non-interest income was mainly underpinned by Net fx gains of N2.3bn (compared
with a N1.7bn in Q3 2016). As for funding income, it came in flattish y/y.
Further down the P&L, PAT grew by 255% y/y, thanks to a -55% y/y reduction
in other comprehensive expense.
was up 12% q/q, thanks to a -38% q/q decline in loan loss provisions. Although
funding income was up by 5% q/q, a -23% q/q reduction in non-interest income
led to a 3% q/q decline in pre-provision profits.
the growth in PBT, PAT fell by -42% q/q because of a negative result of -N917
in other comprehensive income (OCI) compared with +N3.0bn in Q2 2017.