Culled—Proshare

May 1, 2018/FBNQuest Research

Event: Fidelity Bank reports Q1 2018 results
Implications: Downward revisions to consensus 2018E PBT forecast expected
Positives: PAT up 28% y/y driven by a lower effective tax rate of 7.1% (vs. 11.0% in Q1 2017).

Negatives: Pre-provision profits declined by 21% q/q due to q/q decline in funding and non-interest income. 

Fidelity Bank’s Q1 2018 results which were published this afternoon showed that PAT was up by 28% y/y to N4.2bn. However, the double-digit growth was only because of a lower effective tax rate of 7.1% compared with 11.0% in Q1 2017. Moving up the P&L, PBT growth was more modest at 3% y/y.  

The low-single digit earnings growth was underpinned by a 4% y/y increase in pre-provision profits to N20.8bn. Although both revenue lines grew y/y, non-interest income which was up by 13% y/y was the stronger of the two. Funding income grew by only 3% y/y. Loan loss provisions also declined by -6% y/y. Sequentially, PBT advanced by 23% q/q because loan loss provisions fell by 82% q/q. 

However, PAT declined by 35% q/q because of a tax credit of N341m in Q4 2017. A negative result of -N429m in other comprehensive income (OCI) compared with N2.1bn in Q4 2017 also contributed to the q/q decline in PAT. 

Compared with our forecasts, PBT and PAT missed by 29% and 26% respectively. Fidelity Bank’s funding income has been at a quarterly run-rate of c.N18.1bn. As such, given the weakness of funding income in Q1 2018, we expect this line to come under scrutiny by analysts and investors on the bank’s conference call which is billed to hold this Wednesday. 

Fidelity’s Q1 PBT tracks well behind consensus 2018E PBT forecast of N22.6bn. Consequently, we expect to see downward revisions to consensus 2018E PBT forecast. Although Fidelity’s Q4 2017 results which were published earlier today were quite strong, we expect the market’s reaction to be diffused by the subdued Q1 2018 results. 

Having rallied strongly in 2017 (+192.9% vs +42.3% ASI), Fidelity Bank shares have underperformed the NSE ytd (+3.6% compared with the +7.9% return on the index). 

We rate Fidelity Bank shares Underperform. 

Fidelity Bank Q1 2018 results: actual vs. FBNQuest Capital Research estimates (N millions) 

Source: NSE; FBNQuest Capital Estimates