EUR 4.00 For Business Accounts Only

FBN Holdings Plc 2019 - Value Play or Value Trap?

• Following the Analyst call few weeks ago and our follow up engagement with management, we have updated our model with adjustment for expected write-off in NPLs. While we do not rule out the possibility of management achieving the single digit NPL by FY 19, we are however concerned by the quality of loans in the Stage 2 bucket, with 51% of corporate loans (N272.6 billion) in that bucket already 90 days past due. As such, we expect credit loss provision to remain elevated and forecast cost of risk of 5% in FY 19 and FY 20. Relaying from the above and the still elevated NPL (25.3% in Q1 19), we see limited room for any net-loan growth during the year and estimate 5% YoY decline in net loan book to N1.6 trillion (management guidance of 5% growth YoY).
• While we expect non-interest revenue to remain resilient, our estimate of elevated loan loss provision resulted in decline in FY 19E EPS by 6.2% YoY to N1.56. Beyond 2019, we model gradual improvement in net loan book, expansion in CASA proportion of deposits and still resilient fee income. As such, we expect FY 20F and FY 21F EPS growth of forecasts of 10.1% and 24.7% respectively. Although, the adjustment to our model translated to FVE of N9.12, which translates to a STRONG BUY recommendation on our rating scale, key risks to our expectation is a more aggressive write-off during the year which could result in a much higher provisioning than expected. As such, we see the paly in FBNH as a beyond 2019 game. FBNH trades at FY 19F price-to-book of 0.5x, a discount to Tier 1 average of 1.0x.