Friday, October 31, 2014 10:40 AM / FBN Capital Research
Event: Fidelity Bank reports Q3 2014 results
Implications: Limited changes to consensus full year 2014 PBT estimate likely
Positives: Loan loss provisions down -48% y/y, came in 20% below our forecast
Negatives: Though PBT grew 60% y/y thanks to base effects, it was down -20% q/q and missed our forecast by 21%
Yesterday, Fidelity Bank (Fidelity) reported Q3 2014 results which showed strong double digit y/y growth in both PBT and PAT of around 60%. The strong y/y growth was expected because Q3 2013 was a particularly weak quarter. As such, the Q3 2014 earnings growth rates were boosted by base effects. Sequentially, the picture was subdued, with PBT falling -20% q/q while PAT was up slightly, by 4% q/q. The latter was boosted by the fact that other comprehensive income was significantly lower (-95% q/q) than what the bank reported in Q2. The 20% q/q reduction in PBT stemmed from provisions more than doubling to N1.0bn; this proved significant compared with the 2.2% q/q growth in profit before provisions. Of the two income lines, non-interest income grew faster at 6.1% q/q compared with funding income which was flat q/q. The development in funding income is difficult to reconcile with the fact that loan growth of around 12% q/q outpaced deposit growth of around 6% q/q. The explanation may well be down to timing within the quarter.
Relative to our forecasts, the results were below expectations. Both PBT and PAT missed by over 20%. The drivers behind the disappointment included negative surprises on the income lines, particularly non-interest income which missed by 10% and operating expenses which came in about 3% ahead of our forecast. These negative surprises more than offset the lower-than-expected loan loss provisions that Fidelity reported.
On the back of these 9M 2013 results, we suspect that consensus PBT forecast for 2014 of around N17bn may not be revised much. That said, the results confirm our view that Fidelity is unlikely to achieve its 2014 ROAE target of 10%. Although the bank is among the most capitalised in the sector, and therefore least likely to be affected by some of the new rules relating to capital which the regulator is pushing,
Its profitability ratios remain well under par, and below its cost of equity. As such, we believe that this issue will remain the major focus of the market as far as the shares are concerned. Fidelity shares have shed -27.5% this year, 19% worse than the ASI. We expect the market’s reaction to the results to be neutral at best.
Our estimates are under review. We rate Fidelity Bank shares Neutral.
Conference call details: yet to be circulated.