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Initial View - FCMB Group Plc Q2 19 - Modest but not surprising

• First City Monument Bank (FCMB) published its half year results at the close of last week, showing modest improvement in PAT by 8.1% QoQ to N3.9 billion for Q2 19. The improvement stemmed from better NIMs, a fallout of the duo impact of increased asset yield and lower WACF, which outweighed moderation in Non-Interest revenue and higher loan loss provisioning. Estimated ROAE printed at 8.0% (H1 18: 6.5%). Cumulatively, the H1 result amounted to 64% of our FY 19E.
• Interest income over the quarter expanded 4.6% QoQ to N35.9 billion chiefly on the back of growths in interest income on investment securities (+7.4% QoQ to N8.9 billion) and more importantly, earnings on placement (+50.8% QoQ to N2.1 billion). Elsewhere, despite an increase of over N100 billion in due to banks (Q2 19: N130.5 billion, Q1 19: N27.9 billion) over the quarter, lower funding cost on deposits from banks (-44.3% QoQ to N318 million) resulted in marginal growth in interest expense by 0.9% QoQ to N15.9 billion. On balance, net interest income advanced 7.6% QoQ to N20.0 billion.
• As mentioned earlier, NIR moderated 0.8% QoQ to N7.6 billion as lower net trading income (-36% QoQ to N1.4 billion) suppressed increases in Other Income (+92% QoQ to N1.1 billion). Elsewhere, loan-loss provisioning expanded 40.6% QoQ to N3.2 billion with CoR increasing 60 bps QoQ to 2.1%. Cost to Income ratio was recorded at 72.1%, a slight moderation from 75% in Q1 19.
• On regulatory requirement, capital adequacy ratio of 16.3% and liquidity ratio of 40.2%, although above regulatory limit, are lower compared to Q1 19 levels of 16.4% and 47.7% respectively. Also, Loan to Deposit ratio of 75.1% (Q1 19: 73.9%) printed well above regulatory requirement of 60%.
• Meanwhile, we will be seeking clarity on the increase in placements and due to other banks. Also, although the increase in interest income appears good on the surface, we however note our reservation on the sustainability. Particularly, while growth in the bank’s loan book (+0.8% QoQ, -2.8% YTD) has remained disappointing, we observed a significant increase in placements with foreign banks (H1 19: N84.5 billion, FY 18: N1.6 billion, FY 17: N9.3 billion) since the start of the year resulting to higher earnings on placements. 
• The stock currently trades at a current P/B of 0.17x which is at a discount to peers of 0.56x. Our last communicated FVE on FCMB is N2.1 which translates to a BUY rating on the stock. We will revisit our numbers after further discussion with management.

 H1 2019 analyst and investors conference call: FCMB would be hosting a conference call on Thursday, 1 August at 15.00 Lagos & London time. For more details,

 

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