EUR 4.00 For Business Accounts Only

Initial View - Fidelity Bank Plc FY 19 - Full year performance ends on a good note

• Fidelity Bank Plc reported EPS growth of 28.5% YoY to N1.02/share, coming slightly above our estimate of N0.91/share.  The deviation stemmed from a net-write back of N2.1 billion relative to our forecast of N1.6 billion in loan-loss provisioning. We would keep an eye on this line item after the results have been audited and approved by the CBN.
• Key drivers of the result were strong growth in interest income and lower provisioning, both of which masked a decline in Non-interest revenue and sharp increase in interest expense. To start with, growth in interest income largely reflected increase in interest income on customer loans as the bank expanded its loan book significantly by 33% YoY to N1.1 trillion. Despite a 20.3% YoY increase in interest expense – a fallout of higher interest expense on deposits, Net interest income still printed higher (+18.1% YoY to N82.2 billion), thanks to the strong growth in interest income. Elsewhere, a net-write back of N2.1 billion was recorded compared to an impairment charge of N4.2 billion in 2018. Overall, the growth in NII and net-write back neutered a moderation in NIR (-9.9% YoY) as well as higher OPEX (+11.8% YoY).
• Quarterly breakdown revealed a similar decent performance reflective of improved NIMs and a net-write-back of N2.0 billion compared to a loan-loss provision of N630 million in the previous quarter. On the former, NIMs (+20 bps QoQ) improved following a faster decline in cost of fund (-130 bps QoQ). Given that CASA mix remained unchanged over the quarter, we believe the decline in funding cost is not unrelated to the lower rate environment in Q4 19. Overall, PBT came in higher by 17.9% QoQ while PAT recorded a slow growth of 2.9% QoQ owing to a higher effective tax rate (Q4 19: 14.6%, Q3 19: 2.2%).
• While we await audited results and management’s presentation, we note the key risks to consider over 2020 includes: possibility of higher loan-loss provisioning given the significant loan growth over 2019 which exceeded the industry average. On the other hand, we expect funding cost to take a breather owing to a lower rate environment. In addition, NIR declined 9.8% YoY due to a high base of FX gains in 2018. Hence, we expect a normalization and thus, expect to see some growth in NIR over the year.
• We will give update to our forecasts for 2020 upon release of the audited result. Our last communicated FVE of N2.9, translates to a BUY recommendation on our rating scale. FIDELITY trades at a current P/B of 0.27x, a discount to 1-year average of 0.38x.

More analysis to follow.