Tier two lender, Fidelity Bank Plc had a stellar 2017 result but may come in flat this year, in line with industry trends.

Fidelity Bank is our stock pick of the week.

About the company

Fidelity Bank was incorporated on the 19th of November, 1987 as a private limited liability company. It obtained a merchant banking licence on the 31st of December, 1987 and commenced banking operations on the 3rd of June, 1988.

The bank converted to a commercial bank on 16th of July, 1999 and registered as a public limited company on the 10th of August, 1999. It obtained its universal banking license on the 6th of February, 2001. Fidelity was listed on the Nigerian Stock Exchange on the 17th of May, 2005.

Recent results

Results for the first quarter ended March 2018 show that gross earnings increased from N40.8 billion in 2017 to N43.6 billion in 2018. Profit before tax rose slightly from N4.8 billion in 2017 to N4.9 billion in 2018. Profit after tax also increased from N4.3 billion in 2017 to N4.6 billion in 2018.

Pricing

Current share price: N1.67
Year high: N3.99
Year low: N1.51
Year to date: -32.1%
One year return: 34.35%

Business day

Price outlook

Possibilities of the stock going up significantly are quite thin, due to bearish sentiments in the market. Year to date, the NSE is down by over 15%.
The market as a whole has been on a downward trend. Year to date, the stock is down 32.11%, much lower than its tier two peers such as FCMB which is up 12%, and Sterling Bank which has appreciated by 32% year to date.

Valuation

Fidelity Bank is trading at 1.32 times earnings, which is far cheaper than the average PE ratio on the NSE. The stock is also trading at a much lower PE, compared to its peers. Sterling Bank is trading at 3.78 times earnings, while FCMB is trading at 2.75 times earnings.

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Outlook

Fidelity Bank is yet to release its results for the half year ended June 2018. First quarter results were largely flat, in line with industry trends.

Commission on e-banking income dropped from N706 million in 2017 to N460 million in 2018. Maintenance charge, however, increased from N542 million in 2017 to N637 million in 2018.

Banks have moved focus to commissions and charges, as one-time gains from foreign exchange revaluations, and high yields on treasury bills have fizzled out. They are also hesitant to ramp up spending, as the growth remains fragile.

Tier two lenders, Stanbic IBTC and Sterling Bank have, however, bucked the trend, and shown a marked improvement in half-year results compared to 2017.

Fidelity had stellar FY 2017 results with profit, after tax jumping from N9.7 billion in 2017 to N18.8 billion in 2018. The best since it began operations.

H1 2018 results (which are due on or before the end of the month) will provide more clarity, as to the possibilities of exceeding them.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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