Wednesday, November 04,
2020 /11:15 AM / by FBNQuest Research / Header Image
Credit: Business Day
Material upward revisions to our 2020-21E EPS
Bank's (Fidelity) Q3 2020 PBT declined on a y/y basis. However, it was the
bank's strongest quarterly performance year-to-date as PBT of N9.4bn came in
c.57% higher than the average quarterly PBT run rate for H1 2020. PBT also beat
the N5.0bn that we had modelled because of positive surprises in opex and loan
the P&L, the variance in PAT relative to ours was even wider because of a
positive result of +N2.4bn in other comprehensive income (OCI). Consequently,
we have cut our 2020-21E opex forecasts by -10% on average. We have also made a
slight reduction of 5bps to our 2020E cost of risk assumption to 1.25%. These
revisions (together with the OCI for 2020E) are the main drivers behind
increases of 40% and 12% to our 2020E and 2021E EPS forecasts.
Our new price
target of N3.43 is also c.13% higher. Our new forecasts translate to a 2020E
PAT of N40.9bn and an implied 2020E post-tax (& OCI) ROAE of 16.2%. On its
conference call, management disclosed that plans to refinance its N30bn bond
with a new bond (issue size of N50-75bn) are at an advanced stage. The new bond
issue which is expected to be completed by the end of Q4 2020 will take CAR
north of 20% from 18.2% currently.
On a relative
basis, Fidelity Bank shares are trading on a 2020E P./B multiple of 0.3x for
8.8% ROAE in 2021E. The multiple represents a discount of c.-60% to the 0.6x
average that our universe of bank stocks is trading on. Our new price target
implies a potential upside of 43% from current levels.
bank's 2020E dividend yield of 9.1% is slightly better than the 8.5% median for
our coverage universe. Nonetheless, we retain our Neutral rating on the shares
because we see greater upside potential elsewhere within our coverage universe.
Q3 PAT up by 66% y/y, thanks to positive OCI of
PBT fell -13% y/y to N9.4bn, driven by a (+561% y/y) spike in credit
impairments, offsetting a 4% y/y increase in pre-provision profits. In terms of
revenue contribution, funding income, which expanded by 25% y/y following a 5%
q/q growth in net loans and lower funding cost, was the main driver.
non-interest income fell -59% q/q due to a -31% y/y reduction in net fee and
commission income and losses in T-bill trading and other operating income.
Below the tax line, PAT expanded by 66% y/y, but only because of a positive
result of N2.4bn in OCI vs. -N3.6bn in Q3 2019.
PBT increased by 75% q/q. However, PAT fell -23% q/q because of a -75% q/q
reduction in OCI.
Declares N20.4bn PAT in Q3 2020 Unaudited Results, (SP:N2.51k)
Banks in H1 2020:
Deconstructing Banks' H1 2020 Individual Performances - Fidelity Bank
Fidelity Bank at 'B-'; off Rating Watch Negative; Outlook Stable
Appoints Engr. Henry Ikem and Dr. Kenneth Opara as Directors
Notifies of Dealing in 0.07m Volume of Shares By Mr. Mustafa Chike-Obi
Notifies of Board Meeting Date and Commencement of Closed Period
Notifies of Dealing in 2.0m Volume of Shares By Mr Obaro Odeghe
Notifies of Dealing in 2.32m Volume of Shares By Mr Gbolahan Joshua
Notifies of Dealing in 32.44m Volume of Shares By Mr Mustafa Chike-Obi