EUR 4.00 For Business Accounts Only

FCMB: Credit shrink informs revision to 2018 estimate

• In this note, we transfer primary coverage of First City Monument Bank (FCMB) Plc. to Emmanuel Adeleke.
• FCMB half-year result saw earnings jump 90% YoY to N29/share on the back of moderation in funding cost (-44 bps YoY to 6.0%), strong Non-Interest-Revenue (+28% YoY) and a substantial decline in loan-loss provision (-27% YoY to N7.3 billion). However, some key line items came in as a surprise. To be specific, loan growth (-9% YTD) was below our expectation of 0.7% YoY growth. Also, operating expense (OPEX) ran ahead of our estimates (+3.6% deviation) due to higher AMCON charge (+75% YoY) while NIR came in lower than expected (-4.4% deviation).
• Following engagement with management, we made some changes to our estimate for 2018. To be specific, we now model a 6% decline in loan book (previously +0.7% YoY) following current run rate of a 9% decline. Furthermore, we revise the bank’s Non-Performing Loan (NPL) ratio higher to 5.6% (H1 18: 5.7%) due to higher NPL exposure to Oil & Gas downstream. We also adjust our forecast for NIR slightly lower to N6 billion (previously N35.1 billion). Lastly, we revise our operating expenses slightly higher by 2.8% to reflect higher AMCON charge. That said, key drivers for 2018 earnings remain strong NIR, lower funding cost and loan-loss provision. Net impact of our adjustment translates to an EPS of N0.55 (previously N0.87) in FY 2018 with our FVE revised lower to N2.34 (previously N3.38). Nonetheless, we maintain our BUY rating on the stock. FCMB trades at a FY 18E P/B of 0.18x, at a discount to Tier 2 average of 0.20x.
• At current price, our expected dividend of N10 over FY 18E translates to a dividend yield of 5.3%.

 

previously 4.6%