FCMB Plc has taken steps to widen its non-banking operations, and they are slowly beginning to yield returns. FCMB is Nairametrics stock pick for the week.
About the company
FCMB was established in 1982, as a merchant bank, but began operations in August 1983. The bank was given a universal banking licence in 2000 and changed its name from First City Merchant Bank to First City Monument Bank. In 2004, the bank was converted to a public limited liability company and listed on the Nigerian Stock Exchange (NSE) in December that year.
The FCMB group comprises First City Monument Bank, FCMB Microfinance Bank, CSL Stockbrokers, CSL Trustees and FCMB Capital Markets Limited.
Recent results
Results for the half year ended June 2018 show that gross earnings increased from N77.5 billion in 2017 to N83.9 billion in 2018. Profit before tax jumped from N3.8 billion in 2017 to N7.1 billion in 2018. Profit after tax also surged from N3 billion in 2017 to N5.7 billion in 2018.
Pricing
Current Share price: N1.84
Year High: N3.60
Year Low: N1.58
Year to Date return: 22.97%
One Year return: 77.27%
Price Outlook
Chances of the stock going up in the medium to long term are quite low. Sentiments in the markets as a whole are negative. Year to date, the All Share Index is down 8.65% and may continue to drift downwards.
Valuation
FCMB is trading at a price to earnings ratio of 2.3 times earnings. This is far lower than the average price to earnings ratio on the NSE as a whole. The stock is also trading lower than its peers such as Sterling Bank which is trading at 3.5 times earnings.
Outlook
H1 2018 results show FY 2018 gross earnings may be flat compared to the prior year, but full-year profit after tax will exceed last year’s performance.
FCMB made full-year gross earnings N169 billion in 2017. H1 2018 gross earnings were N83.9 billion.
H1 2018 profit after tax was N5.7 billion, while the group made a profit after tax of N9.4 billion in 2017.
While commercial banking remains the key driver of the group, contributions by asset and wealth management are increasing.
The absence of one-time events, such as FX revaluation gains and high yields on treasury bills, has left banks turning their attention to fees and commissions, and First City Monument Bank isn’t left out. Mobile banking income grew by 94% year on year from N214 million in H1 2017 to N416 million in 2018.
FCMB has also keyed into the pensions space with its acquisition of a majority stake in Legacy Pension Managers in November 2017.
Investors expecting a bumper dividend may have to lower their expectations, as the bank during its FY 2017 conference call indicated it would maintain a conservative payout ratio as a means of building up capital. FCMB paid a N0.10 (ten kobo) dividend from an Earnings Per Share of N0.48 (forty-eight kobo).
