Culled—Proshare

September 5, 2017/FBNQuest Research

Ytd rally limits upside potential

Similar to our results review after Fidelity Bank’s Q1 2017 results, we have increased our PBT forecasts over the 2017-18E period modestly, despite the bank’s Q2 2017 results coming in well ahead of expectations. Focusing on 2017 specifically, the modest changes we have made are due to expectations of a subdued outlook for loan growth and our conservatism on the outlook for non-interest income in H2.

Notwithstanding, the strength of the Q2 results, especially on the other comprehensive income line, led us to increase our 2017E EPS forecast by 26%. Our 2017E ROAE forecast, though up from 5.6% to 7.5%, remains below management’s guidance of 10%.

We prefer to assume conservatively that H2 is more likely to throw up negative surprises than positive ones, leading to a weaker quarterly run-rate in H2 PBT (N2.4bn) vs H1 (N5.1bn) than the more bullish outlook that management is implying.

Having said that, we continue to advocate some exposure to Fidelity while acknowledging that it may take until next year before this stance is rewarded – the catalyst being a dividend announcement (FBNQuest forecast 17kobo, implied yield 12.8%).

The lack of an interim dividend most likely explains the market’s indifference so far to the Q2 results. Despite our new price target of N1.48 being up 48% having rolled over to 2018, the implied upside potential is limited to 9.5% because of the shares’ ytd performance: +61% vs ASI’s +32%. We retain

our Neutral rating.

Significant positive surprise in Q2 earnings

Fidelity’s Q2 2017 PBT grew by a stellar 155% y/y to N5.4bn. The key driver behind the strong y/y growth in earnings was a 20% y/y growth in profit before provisions. However, flat loan loss provisions y/y also helped. Both revenue lines contributed to the solid growth: both grew by c.20-21%. Further down the P&L, PAT expanded by 110% y/y to N7.7bn, thanks to a 67% y/y growth in other comprehensive income.

Sequentially, PBT grew by 11% q/q. Although both revenue lines contributed, non-interest income which grew by 130% q/q was the major driver. Funding income grew by a modest 10% q/q, relatively. Compared with our forecasts, PBT beat by 148% because of positive surprises in non-interest income, funding income and opex, in that order.

The strong positives on these lines offset a negative surprise in loan loss provisions. The positive surprise in the PAT was greater (319%) because of the strong other comprehensive income.