Story behind the figures

FBN Holdings share surpasses analysts’ expectation in 2017

…Every investor wants to have FBN shares in his portfolio, Experts:

The share price of FBN Holdings in 2017 has appreciated by 163 percent or N5.45 to close at N8.80 from N3.35 per share it opened for trading this year.

According to analysts, the appreciation in FBN Holdings share price this year did come as a surprise as listed financial institutions on The Nigerian Stock Exchange (NSE) rally over the Central Bank of Nigeria (CBN) stability in the foreign exchange market.

Analysts at Cordros capital said, it revises its target price on FBN Holdings share higher to N7.38 (previous N6.41) and roll forward valuation to 2018 forecast.

FBN Holdings is one of the blue chip shares on the NSE given the fact that it is the parent firm of First Bank of Nigeria Limited.

The stability in foreign exchange market attracted foreign investors and high network investors to the lender’s shares in 2017 leveraging to 52-week high of N9.39 per share in its first time becoming as a Holding company (Holdco).

The improved macro economy indicators (steady increase in global oil prices,   growth in Purchasing Manager Index and slow in inflation rate) also impacted on the Holdco share prices leading to Nigeria exit from recession in second quarter of 2017.

Marginal growth recorded in Gross Domestic Products with reduced inflationary pressure as well as accretion to foreign reserves following increased crude oil price and production volume all contributed to the FBN Holdings growth in share price and earnings.

The shares of FBN Holdings sold off from the early 2017 at N2.95 during the economy recession and bounced above N9.00 52-week as every investor would want to have FBN Holdings in its portfolio because of the many prospects.

The financial institution share finally broke out above that resistance level in the fourth quarter of 2017, entering a strong uptrend that has generated a N21.91 Earning Per Share (EPS) in 2017.

At a point, dividend payment became major issue and challenge for the management of the company, which took it upon themselves to tackle the matter.

FBN Holdings then assured shareholders that a robust risk management strategy was being adopted to ensure that the performance of the company change for the better going forward.

However, going by the nine months results of the FBN Holdings, things are beginning to look up for the financial institution rekindling shareholders’ hopes for higher returns in 2017 financial year ending.

 How has the Holdco performed?

FBN Holdings in its unaudited third quarter (Q3) result and accounts for the period ended September 30, 2017 showed drop in loan loss provision and income tax that boost growth in profit after tax.

Resilient gross earnings generating capacity was sustained from a stronger balance sheet of the group, as the group aspire to becoming the leading financial services institution in Middle Africa.

On risk management and asset quality, the group in the period under review made good progress in strengthening credit approval processes as well as improving asset quality, remediation and associated metrics.

The group’s Gross earnings grew by 5.2per cent to N439.2 billion in Q3 2017 from N417.3 billion in Q3 2016, driven largely by a 27.8per cent growth in interest income.

This was partly offset by a 43.5per cent decline in non-interest income. Interest income and non-interest income contributed 81.3per cent and 18.7per cent respectively. The growth in interest income to gross earnings was driven by increased investment in securities.

Net-interest income improved by 25.3per cent to N254.3 billion as against N202.9 billion in Q3 2016, driven by a 27.8per cent increase in interest income to N356.1 billion from  N278.6 billion in Q3 2016, and by improved yields on interest earning assets and continuous optimization of the loan book.

However, these achievements were partly offset by a 34.4per cent increase in interest expense to N101.7 billion  compared with N75.7 billion in Q3 2016 resulting from the high interest rate environment.

Cost of funds increased to 3.5per cent from 2.7 per cent in Q3 2016, mainly on the back of the high interest rate environment and the impact of the Monetary Policy Rate (MPR)-indexed pricing on our savings deposits.

Non-interest income (NII) declined by 43.5per cent to N74.0 billion from N131 billion in the prior period, driven by the base effect on Foreign exchange income (including foreign exchange revaluation gains).

Foreign exchange income declined to N5.6 billion as against N68.4 billion in Q3 2016, representing 7.6per cent of non-interest income against 52.2per cent in the prior period. Excluding Foreign exchange revaluation gains of the previous year, NII inched up by two per cent.

Fees and commission  income, representing 73.3per cent from 40.2per cent of total non-interest income, increased by three per cent to N54.3 billion as against N52.7 billion in Q3 2016.

The improvement in Fees and commission was driven primarily by: a 1.2per cent increase in electronic banking fees to N15.7 billion as against N15.5 billion in Q3 2016; 25.5per cent growth in custodian fees to N4.3 billion as against N3.5 billion in Q3 2016, among others.

The contribution of electronic banking fees to the total Fees and commission income decreased slightly to 28.9per cent from 29.4per cent in Q3 2016 following the revision on bank charges from the CBN.

As a result of the First Bank’s initiatives implemented to enhance revenue generation through alternative channels, First Bank became the first financial institution in the Nigerian and West Africa sub-region to issue 10 million cards to customers.

Operating expenses increased by 8.4per cent to N175.3 billion from N161.8 billion in Q3 2016 but remain below the headline inflation rate of 15.9per cent.

The increase is as a result of the general inflationary environment and the impact of currency devaluation which were partly offset by a decline in personnel expenses, as we continue our efforts to improve productivity optimise cost and increase operational efficiency.

Cost-to-income ratio closed at 53.4per cent as against 48.4 per cent in Q3 2016.

Net impairment charge on credit losses declined by 14.9per cent to N97.6 billion from N114.7 billion as the group continued to progress on remediation and recoveries as well as asset quality strategies.

In all, the group’s Profit before tax decreased by 3.5per cent to N55.4 billion compared with N57.5 billion in Q3 2016 while  Income tax expense was down to N9.6 billion as against N14.9 billion in Q3 2016, forcing profit after tax gain of about eight per cent to N45.8 billion in Q3 2017 from N 42.5 billion in Q3 2016.

FBN Holdings earnings per share increased by 5.2per cent to N1.64 from N1.56 recorded in Q3 2016.

The Holdings’ Total assets increased by 2.7per cent to N4.9 trillion as at Q3 2017 from N4.7 trillion reported in 2016 financial year; this was largely driven by a 7.1per cent increase in investment securities to N1.34 trillion from N1.25 trillion in 2016; and a 41.9per cent increase in loans to banks to N631.5 billion from N444.9 billion in 2016.

Earning assets have been further optimized with total interest earning assets growing by 5.7per cent to N3.96 trillion from N3.74 trillion in 2016, representing 81.3per cent of total assets from 79 per cent in 2016.

However, Total customer deposits declined by 5.3per cent to N2.9 trillion (Dec 2016: N3.1 trillion) as focused on growing inexpensive deposit at the right mix.

The Group’s deposit base remains overall stable and strong with a growing retail franchise and about 13 million active customer accounts.

Total loans & advances to customers (net) declined by 1.9per cent to N2trillion from N2.1 trillion in 2016, primarily following repayments and write-off of assets that had been fully impaired.

Shareholders’ funds closed at N631.1 billion, up 8.3per cent from N582.6 billion in 2016, benefitting largely from an increase in: retained earnings (up 21.4per cent to N196.2 billion from N161.6 billion in 2016, among others.

Key Ratios on sturdy amid liquidity crunch

Despite liquidity scarcity in the economy, First Bank of Nigeria Limited Capital Adequacy Ratio (CAR) closed Q3 2017 at 17.2per cent from 17.8 per cent 220basis points above the regulatory minimum of 15per cent, while the (CAR) for FBN Merchant Bank closed at 23.1per cent from 22.6per cent above the 10per cent required by regulation for Merchant Banks.

Liquidity ratio for First Bank of Nigeria remains healthy at 47.4 in Q3 2017 as against 52.7 per cent above the 30per cent regulatory mark of CBN.

Post-tax return on average equity stood at 10.1 per cent in Q3 2017 from 9.4 per cent in Q3 2016 while Post-tax return on average assets moved to 1.3 per cent from 1.2 per cent in Q3 2016.

The Group Managing Director, FBn Holdings, Mr. UK Eke, said, “The Group is progressing in building the right structures for sustainable growth through an improved credit culture and risk management; increased technologically driven operational efficiencies; and the introduction of revenue enhancing platforms.

“We remain confident that the initiatives being implemented across our subsidiaries will further strengthen our business and ultimately reposition the Group for sustainable growth.”



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