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Fidelity Bank (Fidelity) sustained the growth in earnings during 9M 2019 results as the bank posted double-digit growth across major income lines. Gross Earnings grew 16% y/y to N161.1 billion (annualised; N214.7 billion), coming significantly above our FY 2019 estimate of N190.9 billion. Buoyed by the strong growth of 28% y/y in Net Fee and Commission Income and a strong increase of  89% y/y in the Other Operating Income, Pre-tax Profit grew 15% y/y to N23.0 billion (annualised; N30.6 billion), which is ahead of our 2019 estimate of N25.9 billion.

The growth in Other Operating Income was driven by Profit on disposal of Property, plant and equipment (N2.5 billion in 9M 2019 compared to N11 million in 9M 2018) and Dividend Income (N1.4 billion in 9M 2019 compared to N229 million in 9M 2018).

[READ MORE: Quick Take: Seasonality and high leverage weigh on earnings]

Interest Income grew 12% y/y and 5% q/q. The growth in Interest Income was on the back of higher Interest earned on loans and advances to customers (up 14% y/y to N95.9 billion). We believe this was supported by the double-digit growth in the loan book (Net loans to customers grew 29% y/y as of 9M 2019).

Interest Expense, on the other hand, rose 24% y/y and 7% q/q, on the back of higher Interest Expense on Term deposits (+20% y/y) as well as borrowed funds (+27% y/y). We believe the higher interest expense incurred on Term deposits reflects higher cost of retaining maturing expensive term deposits given the decline of 10%y/y to N226.6 billion in total Term Deposits. The rise in Interest expense caused Net Interest Income to remain flat, both on a y/y basis and q/q basis.

Notably, Customers Deposits grew 13% y/y to N1.1 trillion from N986.8 billion in 9M 2018. We believe this will continue to support higher transactional volumes on the bank’s digital platforms.

The bank recorded an impressive growth in Net Fee and Commission Income (up 24% y/y to N5.4 billion), on the back of higher account maintenance charges (up 18% y/y), ATM Charges (up 23% y/y), Commission on Fidelity connect (up 26% y/y) and Commission on E-banking activities (up 92% y/y). We attribute the strong growth in these income lines to the retail strategy adopted by the bank which is hinged on leveraging technology in delivering superior services.

The bank reported positive Impairment Charge (on account of writebacks) of N4.8 billion in 9M 2019 compared to a negative of N3.3 billion in 9M 2018 reflecting recovery efforts of management.

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Operating Income grew modestly, up 3% y/y to N76.0bn but was stronger during Q3 (up 21% y/y). The mild growth on a y/y basis was due to a net loss of N4.71 billion on financial assets reported in 9M 2019.

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Operating Expenses grew 14% y/y but declined 8% q/q. The above inflationary growth in OPEX compared to Operating Income (+3% y/y) led to a 771bps increase in Cost to Income Ratio (CIR ex-provisions) to 76.1% in 9M 2019.

Overall, Pre-tax Profit grew by 15% y/y to N23.0 billion while Profit after tax grew 20% y/y to N21.5 billion. On a quarterly basis, however, Pre-tax Profit declined by 5% y/y to N7.9 billion, due largely to the absence of writebacks in Q3 (the bank recorded Impairment Charge of 630m compared to writebacks of N6.5 billion in Q2 2019).


[READ ALSO: Quick Take: Lower revenue & higher leverage underpins weak operating performance]

EPS came in at N0.74 in 9M 2019 compared to No.62 in 9M 2018. Annualised RoAE also improved to 13.8% in 9M 2019 compared to 12.1% in 9M 2018.

We have a target price of N2.79/s for Fidelity with a Buy recommendation. Current price: N1.68/s.




Member of the Nigerian Stock Exchange,

First City Plaza, 44 Marina,

PO Box 9117,

Lagos State,



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