Fidelity Bank Plc kicked off 2019 on an impressive note as its latest Q1 2019 results showed that Gross Earnings grew 11.8% y/y to N48.4bn (annualised; N193.7bn), coming above our FY 2019 estimate of N190.9bn.
Buoyed by the strong growth of 47.5% y/y in Net Fee and Commission Income and a jump of 230% y/y in the Other Income line, Pre-tax Profit grew strongly 34.0% y/y to N6.7bn (annualised; N26.7bn), which is slightly ahead of our 2019 estimate of N25.9bn. The sturdy growth in the Other Income line was bolstered by net foreign exchange gains of N2.3bn realised in Q1 2019 compared to N146m in Q1 2018.
Interest Income grew 2.6% y/y to N38.7bn. On a q/q basis, Interest Income was up 16.2% q/q. On the other hand, Interest Expense rose 6.5% y/y and 4.7% q/q to N22.9 bn, on the back of growth in Customer Deposits, up 18% y/y and 4% q/q. Notably, Customers Deposits crossed the N1trn mark as it closed at N1.01trn in Q1 2019 (Q1 2018; N859.4bn)- we view this positively.
Further down the Income Statement, the bank recorded an impressive growth of 47.5% y/y to N5.4bn in Net Fee and Commission Income, on the back of higher account maintenance charges (up 28% y/y), Commission on travellersí cheque and foreign bills (up 40% y/y) and Commission on E-banking activities (up 74% y/y).
We attribute the improvement in these income lines to the bankís retail strategy, which involves the use of technology in delivering exceptional banking services.
Although, Impairment Charges grew 47% y/y, Cost of Risk (COR) remained flat at 0.4% in Q1 2019, which is below our 2019 COR estimate of 0.7%.
Despite the mild decline of 2.5% y/y in Net Interest Income, Operating Income grew 17.3% y/y to N24.4bn in Q1 2019 from N20.8bn in Q1 2018.
Although, Operating Expenses grew 10.4% y/y to N16.7bn, the higher growth in Operating Income (+17.3% y/y) led to a 427bps decline in Cost to Income Ratio ( CIR ex-provisions) to 68.4% in Q1 2019 from 72.7% in Q1 2018, which was slightly below our 2019 estimate of 69.0%.
Overall, Pre-tax Profit grew by 34% y/y to N6.7bn (Q1 2018; N4.9bn) while Profit after tax grew 28% y/y to N5.9bn, albeit the slower growth in PAT was due to the higher effective tax rate of 11% compared to 7.1% in Q1 2018. EPS came in at N0.21 in Q1 2019 compared to No.16 in Q1 2018. Annualised RoAE also improved to 12.0% in Q1 2019 compared to 9.7% in Q1 2018.
We have a target price of N2.79/s for Fidelity with a Buy recommendation. Current price: N1.91/s.
CSL STOCKBROKERS LIMITED CSL Stockbrokers,
Member of the Nigerian Stock Exchange,
First City Plaza, 44 Marina,
PO Box 9117,
Lagos State,
NIGERIA.
