FBNH the holding company of First Bank and other non banking financial institutions is expected to release its 2015 full year results around the middle of March 2015. Investors are said to be apprehensive about the results believing that profits could come down significantly lower in 2015 than what it was at the end of 2014.
FBNH’s 2015 9 Months results showed pre-tax profits dropped by about 19% to N59 billion a factor made worse by huge loan impairments. The bank posted loan impairments (anticipated loans that could go bad) of about N46.6 billion in the first 9 months of 2015 about 249% higher than the N13.3 billion reported in 2014.
Indications therefore suggest that the loss provisioning could be higher at the end of 2015 following the further drop in the price of oil. Brent Crude for example has tumbled from about $55 in October 2015 to as low as $30 in 2016. This drop means First Bank’s exposure to the upstream end of the oil and gas segments could be further impaired. First Bank is said to have over 70% exposure to the oil and gas and Real Estate Sector which as at October 2015 had contributed to raising its non performing loans ratio to about 4.5%.
One particular oil and gas customer, Atlantic Energy is said to owe First Bank about $400 million which we believe could be impaired. The bank in its earnings update back in October had confirmed that the company had overdue interest payments which it could most likely classify if it doesn’t get paid. If it does, the bank’s profits could be significantly impaired and could lead to a loss for the last quarter of the year.
Source: Bloomberg
These factors appear to have weighed down negatively on the stock with the share price returning an estimated year to date loss of 27%. The share price has also shed over 40% since it last released its result keeping it at a price earnings ratio of 1.5x and price to book ratio of about 35%. First Bank shares has lost around 35% of its value in the last one year.
Apart from its weak profitability outlook, the momentum seems to be off for the bank with technicals suggesting a “strong sell” for the bank’s shares. Despite the apparently low valuation it appears the bottom may still be N1 away as investors continue to send bears down the way of financial stocks. If the bank reports an earnings per share below N1.5 then at its current price earnings multiple of 1.5 the share price could trade at around N2.5. FBNH also last paid dividend per share of 10kobo and bonus shares of 1 for 10.
A repeat of that will put dividend yield at about 2.5% further denting the attractiveness of the stock. It is however, unlikely that the bank will pay dividends of less than 30 kobo per share considering this current share price. A 50 kobo per share dividend will probably cost the company around N15 billion which could imply anything between 30-50% of full year profits depending on what it reports in its performance in the fourth quarter of 2015. Shareholders will hope that this occurs to avoid another rout on the stock.
