First Bank of Nigeria Holdings Plc retains BUY ratings after Q1 2015 results


Monday, April 27, 2015 15:47 PM / ARM Research

First Bank of Nigeria Holdings Plc (FBNH) reported 24% YoY rise in gross earnings to N125 billion for the 3months ended March 2015 while PBT and PAT rose 8.7% and 4.9% YoY to N26.9 billion and N22.6 billion respectively.

Declines across dual revenue streams weigh on top-line
On a sequential basis, gross earnings declined 15% QoQ driven by weakness across both revenue streams: NIR (-28% QoQ to N29.3 billion) and interest income to (-11% QoQ to N95.3 billion). Parsing through interest income components reveals cutback in income from investment securities during the period (-35% QoQ) neutered the impact of 9% QoQ rise in interest income from customer loans. On the other hand, NIR pulled back from Q4 14 highs (+38% QoQ to N41.5 billion) in line with a pattern across some banks (GTB and Diamond) largely stemming from contraction in FX income (-65% QoQ) even as fees declined (-5% QoQ).

Tight lid on costs and provisioning offsets revenue weakness
Despite 4% QoQ rise in funding base, interest expense contracted 10% QoQ to N35.7 billion. Disaggregating the sub-parts throws up reduction in costs on interbank takings (-59% QoQ) and borrowings (-52% QoQ) which track weaker trends in the corresponding balance sheet items: interbank (-2% QoQ) and other borrowings (-10% QoQ) as the underpinning. The moderation in both items offset 8% QoQ rise in funding costs of customer deposits. 

Further gains on the cost side emanated via a 24% QoQ contraction in operating expenses to N57.8 billion. Other opex halved from Q4 2014 highs when FBNH consolidated costs from newly acquired subsidiaries (ICB, Kakawa and Oasis) offsetting gains across staff costs and depreciation and amortization. The impact of the moderation in opex more than offset weakness in revenue items driving a 5pps QoQ reduction in CIR to 65%. Provisions contracted 68% QoQ to N4.1 billion resulting in annualized cost of risk shrinking to 0.6% (FY 14: 1.3%).

The moderation across cost items and milder provisioning resulted in PBT rising 41% QoQ whilst resumption of taxation after Q4’s tax credit drove PAT 17% lower QoQ. Correspondingly, PBT margins are 9pps higher QoQ at 22% whilst PAT margins are flat QoQ at 18%. YoY, both PBT and PAT margins are 300bps weaker.

Muted risk asset growth and tamer NIR expansion soften earnings outlook
Over the rest of the year, we see headwinds to top-line from both revenue segments: NIR due to the lack of volatility under the order based 2WQ system across domestic FX markets and cutback in fees due to lower COT charges whilst muted risk asset growth due to CAR concerns constrains optimism over interest income. (Loans contracted 3% QoQ in Q1 2015). Nonetheless, the improvement in funding costs and operating expenses coming off the 2014 high base should temper impact of revenue pressures on earnings. FBNH currently trades at P/E of 4.1x and P/B of 0.6x which are at discounts to respective peer averages of 5x and 0.9x.  With last trading price of N10.5 at sizable discount to our last published FVE (N18.7), we have BUY rating on the stock.

Related News:
FBNH declares N22.6billion PAT in Q1 15 result SP N10.50k

2. FBNH Proposes 10kobo dividend 1 for 10 Bonus in 2014 Audited result

3. FBN Holdings Reports 21.3 Rise in Gross Earnings to N480.6 Billion in 2014 FYE

4. FBNH declares N82.8billion PAT in 14 Audited result SP N9.21k


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