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Equity Report - Fidelity Bank Plc - Resounding our BUY call

• In our company update published in November (See report: ), we guided to the strong fundamentals underpinning our preference for Fidelity as our top pick in the Tier 2 space. The recently released FY 2018 numbers justified our sense. For context, while the bank posted modest increase in interest income, stronger NIR and more importantly, lower loan loss provision in the period supported the decent earnings (+29% YoY to N22.9 billion) during the period.  Specifically, aided by increased income on placements and investment securities, interest income rose 4.2% YoY to N153.7 billion. Further down, fee income stayed resilient over the year resulting in 9% YoY increase in NIR (N31.8 billion). Lastly, given an improved economic landscape, Cost of Risk (CoR) moderated to a record low of 0.5% (-98 bps YoY) with loan loss provision declining 63% YoY to N4.2 billion.
• Although, recent share price pullback over the past weeks is not unrelated to a play out of the revised dividend payment, wherein shortly after publishing its FY 18 results with a DPS of N0.22, management revised the DPS lower to N0.11 with a press release. Irrespective, we maintain our BUY rating on Fidelity FVE of N2.92, as such, we believe current pricing presents an attractive entry.
• Over 2019, we forecast EPS of N0.88 which is 11% higher than 2018 (N0.79). Growth in earnings mainly reflects i) decline in funding cost (-90 bps YoY) coming from an improved deposit mix and lower rate environment (ii) and also an increase in loan book. Fidelity trades at a current P/B of 0.29x, a premium to FCMB P/B of 0.20x which we believe is justified based on Fidelity ROE of 11.6% relative to FCMB’s ROE of 8.2%.