October 31, 2024/InvestmentOne Report
Upbeat Income from Core Business: According to financials released by FBNH for the period ending September 2024, the bank recorded impressive performance as gross earnings improved by 128.56% YoY to NGN2.25trn. This was on the back of the increase in both interest and non-interest income in the review period. Specifically, interest income grew by 164.64% YoY to NGN1.63trn reflecting the impact of the elevated yield environment. Accordingly, interest earned on investment securities (+194.17% YoY to NGN538.60bn) and loan and advances (+152.19% YoY to NGN1.09trn) contributed to the higher interest income. The increase in interest income was strong enough to outweigh the 214.28% YoY rise in interest expense to NGN759.07bn as of 9M’2024. Consequently, net interest income amounted to NGN873.94bn, 132.72% YoY higher.
Fair Value Gains Support Non-Interest Income: Elsewhere, non-interest income also increased by 79.37% YoY to NGN618.72bn following the rise in fee and commission income (+47.15% YoY to NGN205.33bn) and other operating income (+618.90% YoY to NGN68.08bn). Moreover, net gains from financial instruments made a more significant contribution to non-interest income, increasing by 125.79% YoY to NGN551.76bn. This stemmed from trading gains on debt securities, which amounted to NGN13.51bn compared to the loss of NGN5.15bn in 9M’2023, while fair value gains were the major driver at NGN538.25bn (vs NGN249.52bn in 9M’2023). However, there was a foreign exchange loss of NGN226.73bn due to foreign exchange revaluation.
Impressive Bottom-line Despite Cost Pressures: Eventually, the bank recorded an impressive bottom line in the period, as PBT and PAT rose by 125.97% YoY and 125.82% YoY to NGN610.86bn and NGN533.88bn respectively. This was despite the 94.79% YoY expansion in OPEX to NGN676.82bn, as the strong earnings aided profitability. As such, EPS came in at NGN14.72, compared to the NGN6.54 recorded in the same period in 2023. In terms of profitability ratios, ROE and ROA were higher at 30.63% and 2.90%, higher than 24.82% and 2.32% respectively in the previous year.
Outlook: Going forward, we expect earnings to sustain this laudable growth rate for the remainder of the year, as income from core business is expected to remain high given the prevailing macroeconomic conditions with regards to high inflation and elevated interest rate environment. Also, non-interest income should support earnings given the fluctuations in interest rates which should lead to higher fair value gains, while fee and commission income is expected to also contribute to non-interest income. However, considering the recent uptrend in the stock price, with buying interest from major shareholders, our estimated implied return has shrunk. Hence, we have a neutral view on the ticker despite the positive outlook.
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