Culled—Proshare

30/4/2018/FBNQuest Research  

Event: Fidelity Bank reports Q4 2017 results

Implications: Likely upward revisions to consensus earnings forecasts

Positives: PBT up 232% y/y driven by strong growth in funding income

Negatives: Loan loss provisions spiked by 462% y/y 

This afternoon the NSE published Fidelity Bank’s (Fidelity) Q4 2017 results which showed that PBT grew markedly by 232% y/y to N4.1bn. The robust earnings y/y growth was driven by a 55% y/y expansion in funding income. Although non-interest declined by -5% y/y, the growth in funding income was significant and was the major driver behind the 29% y/y increase in pre-provision profits. 

The double-digit growth in pre-provision profits was strong enough to completely offset a 462% y/y spike in loan loss provisions. Further down the P&L, the PAT growth was amplified to 331% y/y thanks to the  combination of a tax credit of N341m (vs.-N245m Q4 2016) and a positive result of N2.1bn in other comprehensive income (OCI). Sequentially, PBT fell by -33% q/q, mainly because of a significant 59% q/q rise in loan impairment charges. Notwithstanding, PAT advanced by 44% q/q, thanks again to the tax credit and the strong positive result in OCI.   

Compared with our forecasts, PBT and PAT beat our forecasts by 32% and 337% respectively because of positive surprises in non-interest income, tax and OCI. 

On a full year basis, Fidelity’s PBT was up 84% y/y. Similar to the trends for the Q4 2017 results, a 15% y/y growth in funding income was the key driver of profits. PAT accelerated by 237% y/y mainly because of a lower effective tax rate of 8.9% compared with 12% in 2016. The bank has proposed a dividend of N0.11 per share which is around 37% lower than our DPS forecast of N0.18 (N0.17 consensus). The DPS implies a yield and payout ratio of 4.3% and 15% respectively.    

Fidelity’s 2017 PBT was also ahead of consensus PBT forecast of N19.8bn. Consequently, we expect to see upward revisions to consensus 2018E earnings estimate and a positive reaction from the market. 

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 Q4 2017 results: actual vs. FBNQuest Capital Research estimates (N millions)Source: NSE; FBNQuest Capital Estimates