Half-year profits soar despite economic woes
FCMB recently released its H1’20 results, reporting a 9% y/y growth in Gross Earnings to ₦98.2 billion, 3% ahead of our estimate. This was mainly due to an 8% y/y growth in Interest Income to ₦76.1 billion driven by a 15% growth in income from investment securities, and a 14% y/y jump in Non-Interest Income to ₦22.0 billion.
Net Interest Income was also up 17% y/y, thanks to a 3% drop in Interest Expense amid a favourable yield environment and lower Interest paid on deposits. However, the bank recorded a significant rise in Loan Loss Provisions as expected, coming in at ₦7.7 billion (+41% y/y), while Operating Expenses grew by 11% to ₦48.6 billion.
Overall, this led to a 26% y/y growth in PBT, which came in at ₦11.1 billion, 2% above our estimate, while PAT came in 29% higher at ₦9.7 billion, giving us a basic EPS of ₦0.49.
Pandemic drag fails to materialize in Q2
Despite the dip in economic activity caused by the shutdowns in some Nigerian states at the start of Q2’20, FCMB performed better than expected across some key line items during the quarter.
The bank reported a 3% q/q increase in Non-Interest Income to ₦11.2 billion, thanks in part to a 32% increase in foreign exchange gains. This meant that whilst Net Interest Income declined by 4% q/q (22.3 billion) and provisions went up by 11% to ₦4.0 billion, PBT actually increased by 4% q/q to ₦5.6 billion.
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The bank also reported a 21% YTD growth in Loans and Advances, with a further ₦30 billion added in Q2 alone (a 4% q/q increase). Furthermore, the bank reported an 11% q/q rise in deposits to ₦1.1 trillion; diving deeper, we observed a 12% increase in Current Deposits and a 22% q/q increase in savings deposits amounting to a total increase of ₦118.2 billion, whilst the more expensive Term Deposits declined by 5% or ₦12.3 billion.
We believe this bodes well for the bank’s Interest Expenses going forward and expect Interest Expenses in the coming quarters to remain in decline.
Target Price revised to ₦2.66 (Previous: ₦2.59)
With FCMB’s H1 performance coming in better than expected, we have adjusted our FY’20 expectations while remaining cautious due to the ongoing pandemic. Firstly, we increased our FY Net Interest Income projection to ₦80.9 billion (Previous: ₦76.5 billion), as a result of tamer interest expense growth and slightly higher Interest Income.
However, we also increased our Operating Expense figure to ₦90.9 billion (Previous: ₦88.4 billion). Thus, we project an FY’20 PBT of ₦20.6 billion (Previous: ₦18.9 billion) and PAT of ₦17.8 billion (Previous: ₦16.6 billion). This gives us an estimated EPS of ₦0.90 and DPS expectation of ₦0.14 (FY’19: ₦0.14). Therefore, we revise our target price to ₦2.66 (Previous ₦2.59) and maintain our BUY rating on the stock.
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