EUR 4.00 For Business Accounts Only

FCMB Group Plc Q1 2019 - Lower earnings outlook tapers our valuation

• FCMB Q1 result saw PBT jump 17% QoQ to N4.3 billion on the back of higher Non-Interest Revenue (+24.7% QoQ to N7.7 billion) and improved cost-efficiency (CIR - Q4 18: 87.6%, Q1 19: 75%). However, PAT printed flat over the quarter due to a higher effective tax rate (Q4 18: 1%, Q1 19: 16%). Specifically, increase in NIR rode on higher trading gains. Elsewhere, the decline in OPEX reflected a combination of lower admin, personnel and regulatory costs. Elsewhere, despite a 55bps QoQ contraction in WACF, net interest margin came in 51bps lower following a faster contraction in assets yield (-99bps QoQ), a fallout of the lower interest on loans from customers.
• At the Analyst conference call held last week, management gave an update on its NPL exposures with respect to a N10.6 billion write-off across the commerce (N9 billion) and manufacturing (N1.6 billion) sectors. Feedback from discussion with management highlighted exposures to specific trade activities and a waste management business on both the commerce and manufacturing sector respectively. Consequently, absolute NPL declined 28% YTD to N28.5 billion with NPL ratio dropping 160bps YTD to 4.3%. Elsewhere, capital adequacy ratio improved 60bps YTD largely on the back of a N24 billion drop in risk weighted assets (RWA). Further, management guided to loan growth of between 5 – 10% over 2019, deposit growth of 10 – 15% and lower funding cost over the year.
• That said, we however note our concern on the bank’s ability to grow its loan book over the year, largely due to regulatory capital constraint. For emphasis, after net loan book declined 1.5% YoY and 2.6% YoY respectively in 2017 and 2018, it fell further by 2.8% YtD over Q1 2019. As such, we model a much slower growth in net loan of 2.7% YoY (previous: 7% YoY). Coupled with our expectation of a decline in NIR over 2019, we expect EPS to decline 21% to N0.60. Post adjustment, we revise our FVE lower to N2.1 (previously: N2.34), which translates to a NEUTRAL (previously: BUY) recommendation on our rating.