September 2, 2019/InvestmentOne Report
· Net interest income of N21.1billion, up 33.9% q/q; down 3.0% y/y
· Non-interest income of N2.2billion, down 74.3% q/q, up 6.3% y/y
· Profit before tax of N8.4billion, up 25.5% q/q; up 15.7% y/y
· Profit after tax of N7.7billion, up 30.4% q/q; up 18.2 y/y
Fidelity bank published its Q2/H1 2019 financial scorecard on the NSE, last week Friday. PBT and PAT were up 25.5% and 30.4% q/q (15.7% and 18.2% y/y) respectively. Beating our estimates by 14% and 15% on an annualized basis. This was largely due to the N6.5billion write back seen in Q2 2019. However noteworthy, is that 63.9% (N8.7billion) of the bank’s profit came from retail banking
Interestingly, with net loans up 3.4% q/q (17.6% YtD) to N999.3million, and total interest bearing assets up 4.1% q/q (15.6% YtD), net interest income (NII) was up 33.9% q/q (down 3.0% y/y). The decline recorded y/y was largely due to the 16.5% y/y rise in interest expense and decline in yield on earning assets to 13.5% from 15.0% in H1 2018. Consequently, while the bank’s NIM was up 70bps q/q, it declined 130bps y/y, though cost of funds remained flat at 6.6%. The bank’s NII is tracking 3.1% above our estimates on an annualized basis.
On a sequential basis, non-interest income declined 74.3% to N2.2billion but was up 6.3% in H1 2019. The decline was due to a N4.7billion net loss on the de-recognition of financial assets measured at amortized cost in Q2 2019.
| FIDELITY BANK PLC Q2/H1 2019 (YE: DEC) (N millions) | ||||
| Q2 2019 | Q/Q | H1 2019 | Y/Y | |
| Interest Income | 47,156 | 21.9% | 85,830 | 7.2% |
| Interest Expense | -26,031 | 13.7% | -48,931 | 16.5% |
| Net Interest Income | 21,125 | 33.9% | 36,899 | -3.0% |
| Non-interest income | 2,221 | -74.3% | 10,206 | 6.3% |
| Profit before provisions | 23,346 | -4.3% | 47,747 | -1.7% |
| Loan Impairment charges | 6,508 | 728.8% | 5,473 | -311.1% |
| Total Opex | -21,477 | 28.7% | -38,169 | 16.9% |
| PBT | 8,377 | 25.5% | 15,051 | 15.7% |
| Tax | -632 | -13.9% | -1,366 | -4.5% |
| Tax rate | 7.5% | -345.3bps | 9.1% | -192.2bps |
| PAT | 7,745 | 30.4% | 13,685 | 18.2% |
Source: Company financials, Investment One Financial Services Research
In terms of asset quality, while absolute NPLs increased by 8.3% q/q (7.4% YtD) to N56.6billion, its NPL ratio declined 30bps in H1 2019 to 5.4%, as a result of the 15.8% YtD rise in gross loans. The bank also recorded a write back of N6.5billion in Q2 2019 (N5.5billion in H1 2019), as against a loss of N1.0billion in Q1 2019 (N2.6billion in H1 2018).
Furthermore, cost-to-income deteriorated 330bps y/y to 71.9% in Q2 2019 on the back of the 16.9% y/y (28.7% q/q) rise in expenses, driven by higher staff costs and regulatory charges.
Lastly, the bank’s capital adequacy ratio remains above the benchmark at 17.0% and its loan-to-deposit ratio at 69.7% stands well above the CBN’s directive of 60%.
We maintain our BUY rating on Fidelity, with a target price of N2.36 implying a 40.7% upside potential, from its closing price on Friday.
| H1 2019 BANKS COMPARISON SHEET | |||||||
| NGN billion (unless stated otherwise) | FBNH | GTB | ZENITH | STANBIC | FIDELITY | ||
| Key Income Statement Figures | Gross Earnings | 294.2 | 221.9 | 331.6 | 117.4 | 103.7 | |
| Net Interest Income | 146.7 | 222.4 | 142.5 | 39.3 | 36.9 | ||
| Non-interest Income | 59.9 | 71.4 | 109.7 | 54.9 | 15.6 | ||
| Total Expenses | -144.6 | -69.8 | -126.8 | -50.1 | -38.2 | ||
| Loan Impairment Charges | -22.1 | -2.2 | -13.7 | 557.0 | 5473.0 | ||
| Profit Before Tax | 39.9 | 115.8 | 111.7 | 44.7 | 15.1 | ||
| Y/Y PBT Growth | 2.6% | 5.6% | 4.0% | -12.0% | 15.7% | ||
| Dividend (Kobo per share) | nil | 30 | 30 | 100 | nil | ||
| EPS (kobo per share) | 84 | 350 | 283 | 342 | 47 | ||
| Key Balance Sheet Figures | Total Assets | 5,670 | 3,598 | 5,899 | 1,619 | 1,568 | |
| Total Liabilities | 5,109 | 2,995 | 5,079 | 1,346 | 1,383 | ||
| Total Equity | 561 | 603 | 820 | 264 | 184 | ||
| Key Ratios | Net Interest Margin | 7.7% | 9.6% | 8.6% | 4.9% | 5.8% | |
| Cost of Fund | 3.2% | 2.3% | 3.0% | 5.2% | 6.6% | ||
| Cost to Income | 70.5% | 37.6% | 53.2% | 53.2% | 72.8% | ||
| NPL ratio | 14.5% | 6.7% | 5.3% | 3.9% | 5.4% | ||
| Liquidity (bank level) | 40.3% | 47.3% | 74.6% | n/a | 34.8% | ||
| Cost of Risk | 2.2% | 0.2% | 1.4% | 20.0% | -0.2% | ||
| Capital adequacy ratio (bank level) | 15.6% | 23.5% | 25.0% | 27.3% | 17.0% | ||
| ROE | 11.6% | 33.7% | 21.7% | 28.5% | 13.5% | ||
| ROA | 1.1% | 5.8% | 3.0% | 4.5% | 0.6% |
Source: Company financials, Investment One Financial Services Research
