Tuesday, April 30, 2019 / 08:50 AM / By FBNquest
5-6% increase to our 2019-20E EPS forecasts and price target
Fidelity Bank’s (Fidelity) Q1 2019 PBT came in around 18% higher than our forecast mainly because of a positive surprise in non-interest income. A significant proportion of the stellar growth in non-interest income was due to fx revaluation gains (which account for c.60% of total fx income on an annualised basis). As such, we have not carried through the full extent of the positive earnings surprise into our forecasts.
Consequently, we have increased our 2019-20E EPS forecasts by around 5% on average and our price target by 6% to N2.98. Despite the upward revisions to our forecasts, our 2019E ROAE forecast of 10.8% is below management’s 2019E guidance of 13.0%. Although the +13.7% q/q increase in its loan book is already above its 10% loan growth target for the year, management noted that the expansion is in line with its strategy of increasing volume (on earning assets) in order to grow funding income, particularly in light of declining asset yields.
On a relative basis Fidelity Bank shares are among the cheapest within our coverage universe. The shares are trading on a 2019E P/B multiple of 0.3x for 10.1% ROAE in 2020E. These compare with the 0.7x multiple for 18.8% ROAE that the sector is trading on. We rate the bank’s shares Neutral.
PBT up 34% y/y, mainly driven by solid growth in non-interest inc
Fidelity’s Q1 2019 pre-provision profits were up 17% y/y to N24.4bn, mainly driven by an 87% y/y growth in non-interest income. The stellar growth in non-interest income was underpinned by a 47% y/y expansion in net fee and commission income and a 15.4x y/y increase in net fx gains to N2.2bn. The growth in non-interest income completely offset a 3% y/y decline in funding income, a 47% y/y spike in loan loss provisions and a 10% y/y increase in opex and was the major driver behind PBT growth of 34% y/y to N6.7bn.
Further down the P&L, PAT grew faster by 38% y/y thanks to a 167% y/y expansion in other comprehensive income (OCI). Sequentially, the trends diverged markedly from those on a y/y basis. PBT and PAT grew by 33% q/q and 1% q/q respectively mainly on the back of a 23% q/q reduction in opex. Compared with our forecasts, PBT and PAT beat by 18% and 37% respectively mainly because of the positive surprise in non-interest income.
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Graph– One Year Share Price Movement