Friday, October 28, 2016/ 5.55pm /FBNQuest Research
Event: Fidelity Bank reports Q3 2016 results
Implications: Negative reaction by the market likely
Positives: Profit before provisions grew by 14% y/y
Negatives: PAT declined by falling -65% y/y due to a negative result of N2.0bn in OCI and a 295% spike in provisions
Fidelity Bank’s Q3 2016 results which were published this afternoon showed that while PBT declined by 14% y/y to N3.6bn, PAT fell by a wider margin of 65% y/y to N1.1bn.
The greater decline in the PAT was driven by an other comprehensive income loss (OCI) of –N2.0bn which appear to be net losses on available-for-sale securities. Further up the P&L, the y/y decline in PBT was mainly driven by a significant (295% y/y) spike in provisions.
However, a 7% y/y rise in opex also contributed. Although pre-provision profits grew by 14% y/y, the negatives (on the provisions and opex lines) proved more significant. Of the two revenue lines that contributed to the growth in pre-provision profits, the non-interest income line which grew by 61% y/y was the stronger.
Funding income growth was more subdued at 6% y/y. Sequentially, the trends differed slightly from those on a y/y basis. PBT grew by 57% q/q, thanks to a 22% q/q growth in funding income and a reduction of a similar magnitude (-22% q/q) in loan loss provisions.
However, PAT declined by 70% q/q due to the negative result on the OCI line. Compared with our forecasts, PBT was broadly in line (-7%) with what we were modelling. However, PAT missed by 65% due to the negative surprise in OCI.
On an annualised basis, although Fidelity Bank’s 9M PBT of N9.8bn is broadly in line with consensus PBT forecast of N12.9bn, we believe the weakness on the PAT line would be a source of concern to investors.
When annualised Fidelity Bank’s loan loss provisions implies a cost of risk of around 1.6% which is slightly higher than the 1.5% maximum that management has guided to. As such, we expect the provisions line to draw scrutiny from investors. Fidelity’s 9M PAT puts the bank on track to deliver ROAE of around 3.6%.
While this is broadly in line with guidance of less than 10%, it is below the 5.6% implied by consensus 2016 PAT forecast of N10.5bn. As such, we expect to see a broad sell-off on the shares over the next few days.
Year to date, Fidelity has underperformed the index shedding -43%, compared with the -4.8% return on the index.
We rate Fidelity shares Underperform. Our estimates are under review.
Fidelity Bank Q3 2016 results: actual vs. FBNQuest Research estimates (N millions)