Fidelity Bank Plc is currently the 6th biggest bank in Nigeria and is probably N60billion – N80billion short of 5th in terms of Net Assets. The Bank released its 2012 Audited Financial Statements with Net Interest Income jumping 20% to N36.8billion. The banks also made an additional N40.4billion in commissions and other income, making up more than half of the the total operating income of N72.6billion. Pre-tax profit also rose to N21.8billion (2011: N161million) after a 2011 that saw loan losses wipe out over 33% of Operating Income.
Fidelity Bank’s annual report is not yet out however one can rely on their 9 months earnings report break down where their strength lies. Like most banks this clime, the bank’s net income has mostly relied on risk free high interest yielding government securities. The bank also increased lending 23.7% during the year to N345.5billion, representing half about half its total deposit base. Corporate lending takes up 74% of its total loans. The bank claims its non-performing loan levels currently stands at 6% down from 13% the prior year. But that is not surprising, most banks this year are expected to claim a better loan loss ratio despite lending more.
How does one now predict where the risks lies and when it may crystallize? The bank has a well balanced loan portfolio lending to almost every sector of the economy. As at September 2012, Manufacturing had the highest with 24% followed closely by the transport& telecoms sector at 22%. You may be wondering why they merged up both telecoms and transport? I am wondering too!! A more pertinent question may well be how the two(three?) sectors perform in the coming years. After all, banks don’t operate in a parallel market. When the wider economy starts to tank expect banks to follow suit two to three years after. Thus, if investments in manufacturing and the transport sectors don’t grow as expected the bank is bound to suffer as well. The telecom sector one might argue has been struggling to reman profitable amidst stiff competition. We all know the problems with manufacturing.
Measuring the bank efficiency levels is somewhat tricky considering the distort created by the disparity in loan losses in the comparative years. So, if we are to eliminate loan losses, it will appear the bank’s cost cutting measures had improved by about 9%. Earnings per share following IFRS has improved from a dismal 9kobo (2011) to 63kobo per share (2012).
The Banker Magazine named Fidelity Bank the “Soundest Bank in Nigeria” (whatever the heck that means). Their share price is currently N2.99 down from its year high of N3.47 back in February. Using its year high price of N3.47 will produce a price earnings ratio of 5.5X. The current marked value is also just 53% its Book value, a huge discount of a price. Mind you, even at this price their share price has grown 119% in the past one year.
Banks operate in a cyclical market where there are constant boom and bust cycles making it difficult to hold for long. However, if there was such a time it was worth investing in Fidelity bank then it probably is now.
Fidelity Bank Plc result was first posted on the website of the NSE