Shares of Fidelity Bank Plc were among some of analysts’ top picks for 2022, between January 1 and April 6, 2022. By the close of trading for the year on December 30, 2022, Fidelity Bank shares have outperformed the market.
The bank’s share price gained 70.6% YTD, ranking it 13th on the NGX in terms of year-to-date performance and the 8th most traded stock over the past three months, justifying analysts’ BUY rating given to the stock at the beginning of the year
The bank also has been able to sustain its upward earnings growth trajectory having grown its earnings by 17.2% over the past 5 years.
Latest Results: The bank released its Q3 2022 results showing gross earnings increased by 38.7% YoY to N241.9 billion on account of 53.1% growth in interest and similar income to N210.4 billion from N137.4 billion in 9M 2021. Also, earnings grew by 34.7% to N37.8 billion for the 9M 2022, exceeding its 5-year average growth of 12.2% and the bank’s industry of 27.5%.
Similarly, the bank’s earnings per share have been growing significantly. Over the last three years on average earnings per share have increased by 16% per year. In Q3 2022, EPS moved up to N0.40 from N0.25 in Q3 2021, representing a 60% on-year growth.
The bank’s trailing twelve months’ earnings per share is currently N1.62 per share higher than the earnings per share reported in the full year of 2021.
Sector challenges: The Nigerian banking sector has experienced significant headwinds this year largely due to the central bank’s monetary policy which restricts the amount of cash banks can hold in their reserves. This impacted the bank’s net interest income growth, especially in Q1 2022.
However, the central bank’s increase in monetary rates led to upward revisions of lending rates, which reflected positively on the margin of banks, especially in succeeding fiscal quarters.
For example, Fidelity bank’s 34.7% growth in earnings was driven by improved net interest margin, which increased to 6.2%, from 4.7% in the 2021 FY due to increased market yield, as average funding cost remained unchanged year-to-date.
The average yield on earning assets increased by 166bps to 11.7% while, the average funding cost stood at 4.3%, which resulted in a 72.2% year-on-year increase in net interest income to N11.9 billion
These reasons are perhaps why the bank’s share price eventually closed bullish at the end of the year; tracking significantly ahead of earnings growth.
Projections for Fidelity Bank: At N4.35, the bank is trading at a trailing twelve months price-to-earnings ratio of 2.69x, which is below the NG Market P/E ratio of 7x.
Nairametrics projects around N1.75, which at a multiple of 3x could see the share price valued at N5.24 per share. Also at a price-to-book ratio of 0.43x below 1x, the bank stock is considered undervalued.
The bank’s share price also delivers a dividends yield of 8.05% based on its last fiscal year paid dividends. This is higher than the bottom 25% and in the top 25% of dividend payers in the NG market.
The bank has consistently paid dividends in the last 15 years, even in the most turbulent time in the Nigerian banking industry.
In the last 5 years, dividends have moved within the band of +/- 50% of 23 kobo per share. Currently, the bank’s guidance for dividend payment is between 25% and 40% of annual profit
Fidelity bank commands strong consensus BUY recommendation.
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