FBN Holdings Plc (FBNH) recently announced its Q1-2020 results. Gross earnings came in at NGN159.68 billion up 14. 5% YoY, as PAT in Q1–2020 settled at NGN 60.25 billion up, 62.7% YoY. The latter was powered mainly by 88.9% growth from the non-interest income of NGN49.73 billion vs NGN26.32 billion in Q1-2019.
The FBN holdings grew its operating income by 12.2% YoY to NGN109.99 billion compared to NGN97.98 billion in the same period in 2019. The impairment charge for credit losses declined by 29.9% to NGN9.70 billion, in contrast to NGN13.84 billion in Q1-2020. Trading gains came in solid at NGN13.50 billion vs NGN1.59 billion in Q1-2019, as the bank exploited the high value of its investment securities amidst lower yields.
Growth of e-business was moderate at 9.7% YoY to NGN11.02 billion from NGN10.05 billion in Q1-2019 amidst a reduction in transaction fees as directed by CBN to all banks in Nigeria.
- Trading income supports Non-interest income line as the bank took advantage of the higher value of its investment securities amidst lower yield environment. The line came in robust at NGN13.50 billion from NGN1.59 billion in Q1-2020. Also, Net gains on the financial instrument at fair value through profit or loss printed NGN8.34 billion against the loss of NGN307 million in Q1-2019. Hence, Non-interest income grew by 88.9% to settle at NGN49.73 billion from NGN26.32 billion in Q1-2019.
- Non-performing loans improved to 1.8% from 2.7% in contrast to Q1-2019 of 2.7% as the cost of risk settled at 9.2% from 25.3% in Q1-2019. This was due to the significant decline in an impairment charge for credit losses and an effective loan recovery mechanism which is in line with the bank’s strategy. Cost to income ratio moderated to 65.1% in Q1-2020 from 67.7% in Q1-2019 buoyed by operating income growth of 12.2% YoY against operating expenses growth of 9.7% YoY. Capital Adequacy Ratio was weak at 15.3% vs the regulatory minimum of 15%.
- Net interest margin declined to 6.3% in contrast to 7.7% in Q1-2019 as interest income declined by 4.2% YoY on the back of low yield environment and a decline in interest on loans. Net loans and advances to customers grew by 10.7% to NGN2.05 trillion in the quarter from NGN1.85 trillion in Dec 2019 as customer deposits increased by 6.7% settling at NGN4.29 trillion from NGN4.01 trillion in Dec 2019. Interest expense advanced by 17.9% as funding cost increased.
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Valuation and Analyst’s Comment
We place a BUY recommendation on FBN Holdings (FBNH NL) Plc, with a 12-month target price of NGN10.30 – translating to an estimated capital gain of 136.76% from its April 24, 2020 closing price of N4.35. The current economic downturn is expected to affect the creditworthiness of business hence, impacting on the bank’s ability to grow loans. We expect the regulatory forbearance to serve as a safe haven in the near-term thereby reducing the impact of current economic event on asset quality – nevertheless we are of the opinion that the capital adequacy ratio of the bank will remain dampened. The lockdown in Lagos, Abuja and Ogun states is expected to boost transaction volume thereby supporting the e-business income line.
Comercio Partners is a limited liability company in Nigeria with core business in trading fixed income securities and equities