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NIR and reduced Opex to support FBN Holdings’ profit growth

We have made slight changes to our estimate, with the overall effect being a slight change to our price target.

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FBN holdings plc, First Bank

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.

READ MORE: COMMENTARY: Moody’s changes outlook on Nigerian banking sector to negative

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.

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@Copyright CSL STOCKBROKERS LIMITED, 2020. All rights reserved.

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Companies

Cutix Plc forecasts N148 million profit in Q4 2021

Cutix Plc has projected that its revenue will double and profit will increase by 9% to N148 million.

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Cutix Plc, dividend

Cutix Plc has projected that in the fourth quarter of its financial year 2021, its revenue will double and profit will increase by 9% to N148 million.

These projections were made by the company in a recent earnings forecast issued by the Management, and signed by the Company’s CEO and CFO.

READ: Vitafoam shares gain 9.6%, as company reports N4.11 billion as profit in 2020

Key highlights of the earnings forecast for Q4 ended April 30, 2021

  • Revenue to increase to N1.66billion, 100% Q-o-Q.
  • Cost of Sales to increase to N1.16 billion, 70% Q-o-Q.
  • Distribution, Admin & Other expenses to increase to N232.89 million, 14%% Q-o-Q.
  • Other Income to remain unchanged at N2.50 million,
  • Finance Charges to increase slightly to N47.38 million, 3% Q-o-Q.
  • Operating income to increase to N227.83 million, 14% Q-o-Q.
  • Taxation is projected at N79.74 million.
  • While Profit attributable shareholders is projected at N148.10 million.

READ: Royal Exchange Plc forecasts N500.83 million PAT in Q1 2021

Specta

Bottom line

The earnings forecast was made on the ground that the Nigerian economy will continue improve, as the country recovers from the impact of COVID-19. In this regard, revenue in the fourth quarter of 2021 will be slightly higher than the revenue projected in the third quarter of 2021.

READ: Okomu Oil Plc records 27.01% decline in 2020 Q3 revenues

However, the increase in the cost of sales driven by the input cost will pressure profitability to the tune of N148.10 million, which is 9% higher than the profit after tax made in the corresponding quarter of 2020.

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Company Results

Vitafoam shares gain 9.6%, as company reports N4.11 billion as profit in 2020

Vitafoam Nigeria Plc profit revealed 72.10% increase when compared with the N2.39 billion reported in the corresponding period of 2019.

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Vitafoam Nigeria Plc, Vitafoam returns to a 5-year high

Vitafoam Nigeria Plc has reported in its audited financial statement for 2020 that it made a profit of N4.11billion for the year ended 30 September 2020.

This represents a 72.10% increase in profit when compared with the N2.39billion profit reported in the corresponding period of 2019.

READ: Vitafoam returns to a 5-year high

Key highlights

  • Revenue increased to N23.44 billion in 2020, 5.21% Y-O-Y.
  • Cost of Sales decreased to N12.43 billion in 2020, 8.06% Y-O-Y.
  • Gross Profit increased to N11.01 billion in 2020, 25.68% Y-O-Y.
  • Other income increased to N638.97 million in 2020, 63.91% Y-O-Y.
  • Distribution costs increased to N1.05 billion in 2020, 8.13% Y-O-Y.
  • Administrative expenses increased to N4.13 billion in 2020, 10.57% Y-O-Y.
  • Operating profit increased to N6.47 billion in 2020, 45.58% Y-O-Y.
  • Finance income increased to N106.51 million in 2020, 5.39% Y-O-Y.
  • Finance Costs decreased to N930.17 million in 2020, 11.39% Y-O-Y.
  • Profit from continuing operations increased to N3.92 billion in 2020, 58.88% Y-O-Y.
  • Profit from discontinued operations increased to N191.63 million in 2020, 345.68% Y-O-Y.
  • Profit for the year increased to N4.11 billion in 2020, 72.10% Y-O-Y.

READ: Vitafoam’s 2020 oncourse to make light–work of 2019

READ: Sterling Bank Plc forecasts N2.09 billion PAT in Q1 2021

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What you should know

  • Shares of the company have gained 9.6% within the first one hour of trading, largely at the backdrop of news of the company’s impressive performance as the current valuation of the company in the light of its results suggests that the shares of the Company are undervalued at the current price.
  • Checks by Nairametrics as of 11:10 am today confirmed that the company is on a full bid, as 4,930,245 bids from 23 investors have been placed at the highest price for the day, without a single offer at a price lower than N8.55.

READ: Ecobank Transnational Inc. records 11% increase in interest income for Q3 2020

Bottom line

The profitability of the company was beefed up in 2020 on the back of the decrease in the cost of raw materials coupled with the increase in sales from the core segment of the company which led to the 5.21% increase in revenue in 2020.

READ: Bitcoin miners are super-rich, earn $1,000,000 per hour

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However, it is important to note that the impressive performance of the Vitafoam Group was also strengthened by the increase in other profit owing to improvement in sales, this helped the company to also grow its revenue from services provided to customers’ after-sales.

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Company Results

Neimeth posts profit of N212.48 million for year-ended September 2020

Neimeth profit declined by 3.48%, as profitability was pressured by rising costs and expenses in 2020.

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Neimeth Pharmaceuticals

Neimeth Pharmaceuticals Plc has reported in its audited financial statement for 2020 that it made a profit of N212.48 million for the year ended 30th September 2020.

This represents a 3.48% decline in profit when compared with the N220.15 million PAT reported in the corresponding period of 2019.

READ: PZ incurs N1 billion in exchange rate loss 

Key highlights

  • Revenue increased to N2.84 billion in 2020, 19.73% Y-O-Y.
  • Cost of Sales increased to N1.33 billion in 2020, 13.11% Y-O-Y.
  • Gross Profit increased to N1.51 billion in 2020, 26.23% Y-O-Y.
  • Other income increased to N29.29 million in 2020, 1049.33% Y-O-Y.
  • Marketing and distribution expenses increased to N505.11 million in 2020, 33.90% Y-O-Y.
  • Administrative expenses increased to N452.28 million in 2020, 20.54% Y-O-Y.
  • Exchange loss increased to N188.05 million in 2020, 479.25% Y-O-Y.
  • Operating profit decreased to N393.26 million in 2020, -4.87% Y-O-Y.
  • Finance costs decreased to N95.87 million in 2020, -12.00% Y-O-Y.
  • Profit after tax decreased to N212.48 in 2020, -3.48% Y-O-Y.

READ: Bitcoin miners are super-rich, earn $1,000,000 per hour

Bottom line

The report revealed that despite the impressive performance of the core operating segment of the company, and the increase in the revenue generated from the Animal Health segment, the profit of Neimeth Pharmaceuticals was pressured by rising costs in 2020 and this led to 3.48% decline in profit year-on-year.

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READ: Pharma Deko Plc records 1.16% increase in 2020 9M revenues

Neimeth Pharmaceuticals suffered from substantial cost and expenses increase in 2020, as the increase in production cost, marketing and distribution expenses (driven by increased payment to employees in this department), administrative expenses (driven by expenses paid for conference and meetings, bank charges and commission, communication and subscription, energy cost, insurance and medical expenses) and increase in foreign exchange loss driven by naira devaluation, pressured profitability in 2020.

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