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FBN HOLDINGS PLC 9M'17 - Strong margins, improving asset quality lift earnings

Strong margins, improving asset quality lift earnings                                                                    

FBNH released its 9M’17 results, reporting better than expected performances across most key line items. Whilst top and bottom lines came in 6% and 8% stronger y/y, the income lines were 4% and 14% better than our respective estimates. Notably, despite a significant 44% moderation in Non-Interest Income (following prior year’s high base due to FX revaluation gains), top line performance was supported by larger than expected rise in Interest Income – thanks to stronger income from investment security and improved yield on assets. Interest Expense however remained on the rise, up 34% y/y to ₦102 billion (Vetiva: ₦97 billion) despite a 3% q/q moderation. In line with improving macroeconomic environment (amidst stronger oil prices), NPL ratios declined for the second consecutive quarter – down 190bps to 20.1%. Following this, loan loss provision moderated 15% y/y to ₦97.6 billion – 8% better than our ₦106.7 billion estimate.                                                                                

Our estimates have been revised marginally to reflect the deviations in top line, OPEX, and loan loss provision. Whilst we maintain our flat loan growth expectation for FY’17, we raise our Gross Earnings forecast to ₦582 billion (Previous: ₦569 billion) – supported by the high interest rate environment. We cut our loan loss provision marginally to ₦133 billion (Previous: ₦142 billion) to reflect the miss. Also, we revise our OPEX higher due to the cost pressure observed in Q3’17. We raise our FY’17 PAT forecast to ₦63 billion, a huge rise from prior year’s ₦17 billion. Overall, we revise our Target Price (TP) to ₦8.64 (Previous: ₦7.75).                                                                      

First Bank of Nigeria Holdings (FBNH) PLC is the largest financial services group in Nigeria. FBNH is structured under four business groups, namely: Commercial Banking, Investment Banking and Asset Management, Insurance, and Other Financial Services. FBNH’s principal bank subsidiary is First Bank of Nigeria (FirstBank), Nigeria’s largest commercial bank with operations in 7 countries.