FBN Holdings (FBNH) performance in 2019 showed improving asset quality. However, high Operating Expenses resulted in a deterioration in Cost to Income Ratio (CIR ex-provisions) to 70.0% compared with 63.7% in 2018 was a major drag to earnings. In line with Management’s guidance that majority of the costs were one-off, we saw an improvement in CIR to 65.1% in Q1 2020. Adjusting for the one-off expenses, cost savings from COVID-19 restrictions and accounting for reduced operating income on the back of COVID-19, we forecast CIR declining to 65.0% in 2020e.
The bank’s asset quality ratios continue to improve with Cost of Risk (COR) moderating to 1.9% in Q1 2020 compared with 2.6% for FY 2019 and NPL ratio coming down to 9.2% from 9.9% in FY 2019. Though we expect a strain in FCY loans following the reduction in oil prices and elevated risks to devaluation in the local currency, we expect that many of such loans will be restructured and their tenors elongated in the near term. We however believe we will see some deterioration in the loan book because of the effects of the pandemic on many businesses and consumer pockets. This makes us model COR of 2.5% for 2020e.
Capital Adequacy Ratio (CAR) of 15.3% (without the full impact of IFRS 9) was reported for FBN Nigeria in Q1 2020, almost at par with the regulatory limit of 15.0%, implying the bank will continue to retain capital aggressively to avoid external capital increase in the near term. Without significant deterioration in asset quality, which we believe is unlikely in the near term, we believe the bank can struggle to remain above water considering its net long FX position and expectations of revaluation gains to cushion the effect of further devaluation on capital. As of FY 2019, FBNH had a net long FX position of c.US$398.2m.
We have made slight changes to our estimate, with the overall effect being a slight change to our price target which reduces to N11.07/s from N12.13/s previously and we retain a Buy recommendation. At 0.27x price-to-book (P/BV), valuation remains compelling and though we expect income growth to be challenged owing to the Covid-19 pandemic and the fragile economic conditions, we see no major disaster in view.
@Copyright CSL STOCKBROKERS LIMITED, 2020. All rights reserved.
Conoil Plc declares dividend payment for FY 2019, announces AGM soon
The current share price of the oil marketing firm as of July 9, 2020, is N18.90 per share.
Oil marketing giant, Conoil Plc, has announced a final dividend payment of N2.00 per ordinary share of 50 kobo each for the period ended December 31, 2019.
The final dividend payment which will be paid to shareholders whose names appear in the Register of Members as at close of business on Monday, July 13, 2020, is, however, subject to the appropriate withholding tax deduction and the approval of the shareholders.
This information was contained in a notification that was sent by Conoil Plc to the Nigerian Stock Exchange (NSE) on Thursday, July 9, 2020, and signed by its Company Secretary/Legal Adviser, Conrad Eberemu after the release of the full-year audited financial statement for the year ended 2019.
The statement from Conoil says, ‘’A final dividend of 200 kobo per 50 kobo ordinary share, subject to appropriate withholding tax and approval will be paid to shareholders whose names appear in the Register of Members as at the close of business on the Monday, 13th day of July 2020.’’
‘’The Register of Shareholders will be closed from Tuesday, 14th to Friday, 17th July 2020.’’
The corporate actions announcement by the oil firm also states that while the payment date will be on a date to be announced shortly, the dividends will be paid electronically to shareholders whose names appear on the Register of Members as at Monday, July 13, 2020, and who have completed the e-dividend registration with a mandate to the Registrar to pay their dividends directly into their bank accounts.
The oil marketing company also noted that shareholders with dividend warrants and share certificates that have remained unclaimed, or yet to be presented for payment or returned for validation are advised to complete the e-dividend registration or contact the Registrar (Meristem Registrars and Probate Services Limited).
The company’s Annual General Meeting (AGM) will be held at a venue and date to be announced shortly.
Conoil PLC, in its recently released audited financial statement for full-year 2019 announced a Profit after tax of N1.99 billion as of December 31, 2019. This represented an increase of 11% when compared to the N1.8 billion that was recorded for the corresponding period in 2018.
The profit after tax was recorded on a Revenue of N139.76 billion as of December 31, 2019. This also represents an increase of 14% when compared to the N122.21 billion that was achieved for December 31, 2018.
The Profit before tax as of December 31, 2019, was N2.78 billion as against the N2.57 billion achieved for the corresponding period in 2018.
The current share price of the oil marketing firm as of July 9, 2020, is N18.90 per share and the earnings per share is N2.77.
NSIA records total comprehensive income of N36.15 billion in 2019
The NSIA recorded an increase in total assets to N649.84 billion at the end of the financial year.
The Executive Director, Nigeria Sovereign Investment Authority (NSIA), Stella Ojekwe-Onyejeli, announced in a virtual briefing to newsmen on Friday that the NSIA recorded a Total Comprehensive Income (TCI) of N36.1 5 billion in 2019.
She revealed that the 2019 income was less than the TCI for 2018, which was N44.34 billion. However, the NSIA recorded an increase in total assets to N649.84 billion at the end of the financial year, as opposed to that of 2018 which closed at N617.70 billion.
Ms Ojekwe-Onyejeli said that TCI income for 2019 included foreign exchange gains at N1.26 billion compared to N18.05 billion in 2018, noting that the gain in forex was due to changes in Nigeria’s official exchange rate from N305 to a dollar to N325.
“As of year-end 2019, NSIA’s core capital remained at 1.5 billion dollars.” She said. “The Authority continues to manage 3rd party funds on behalf of some government institutions. We currently manage funds for the Debt Management Office (DMO) and the Ministry of Finance.
“For DMO, the current value of Assets under Management (AuM) is 124.03 million dollars. For 2018, this fund stood at 122.60 million dollars in AuM.
“For the Nigeria Stabilisation Fund, managed on behalf of the Ministry of Finance, the Fund Balance was N33.365 billion. As of 2018, this balance increased to N20.814 billion.”
“However, the National Economic Council voted for an additional capital contribution of 250 million dollars in 2019, which was received on April 8,” she explained.
She added that the group’s strategy to invest in diversified products across the yield curve provided returns and that the Stabilisation Fund (SF), which had been fully invested by the end of 2019, returned 5.81%, outperforming its benchmark by 381 basis points.
She also stated that the Future Generations Fund (FGF), deployed by the NSIA across multiple global equities, hedge funds and other diversifiers, returned 6.45% at the end of 2019, outperforming its benchmark of 6.43%.
“As of year-end 2019, we had deployed over 90 percent of the capital in the Future Generations Fund,” she said.
Sterling Bank’s earnings to remain pressured but valuations still attractive
We project Pre-tax Profit of N9.0bn (down 15% y/y) and we estimate ROAE of 6.9% in 2020e (FY 2019; 9.8%).
Sterling Bank’s Q1 2020 numbers were largely impacted by the regulatory-induced fee cut on e-banking transactions resulting in a decline in Net Fee and Commission (down 16% y/y) and weak operating efficiency given the higher growth in OPEX (up 8% y/y) compared with the increase in operating income (up 3% y/y). Net Interest Margin (NIM) however improved to 7.7% in Q1 2020 (Q1 2019; 7.4%) on the back of lower funding cost (5.1% in Q1 2020 compared with 6.6% in Q1 2019).
Sterling bank’s NPL ratio declined to 2.0% in Q1 2020 from 8.9% in Q1 2019 following the declassification of exposures in stressed sectors. We do not expect asset quality issues to crystallise in the short term, as we expect the bulk of the loans in the Oil and gas upstream/midstream (c.27% of gross loan) to be restructured. We however expect earnings to weaken in 2020, due to low asset yields amidst weak loan creation and the downward adjustment in fees on e-banking transactions. We Project Pre-tax Profit of N9.0bn (down 15% y/y) and we estimate ROAE of 6.9% in 2020e (FY 2019; 9.8%).
Following the downward revision to our 2020 earnings forecast, we have revised our target price downwards to N1.67/s from N2.84/s previously. We however maintain our BUY recommendation due to attractive valuations (P/E; 3.7x and P/B; 0.3x) and the 34% upside from the last closing price of N1.25/s. We note that the steep decline in the stock price (down c.37% since the start of the year) presents an attractive entry point.
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@Copyright CSL STOCKBROKERS LIMITED, 2020. All rights reserved.