FBN HOLDINGS PLC FY'17 - Weaker Q4 drives FY’17 earnings miss

Weaker Q4 drives FY’17 earnings miss                                                 

FBNH released its long-awaited FY’17 results, posting mixed performance across major earnings lines. Particularly, Gross Earnings rose 2% y/y to ₦595 billion - ahead of our ₦581 billion estimate. The mild top line growth was supported by a 16% y/y rise in Interest Income to ₦470 billion (Vetiva: ₦478 billion) amidst a notable 32% y/y moderation in Non-Interest Income to ₦113 billion – following the continued normalization of Foreign Exchange Gains. Despite the relatively flat Customer Deposit for the year, Interest Expense was up 37% y/y and 9% q/q to ₦138 billion – 2% higher than our ₦135 billion estimate. With this, Net-Interest Income rose 9% y/y to ₦332 billion, 3% weaker than our estimate, following a 14% q/q contraction. However, weak asset quality continues to drag earnings. With the lower effective tax rate of 16% (FY’16: 25%), PAT rose 179% y/y to ₦48 billion (thanks to the lower base from prior year) - missing our ₦61 billion estimate.                                              

We have revised our estimates across most line items to reflect the earnings miss. Particularly, whilst we expect improving risk environment to support credit growth in 2018, we cut our loan growth forecast to flat (Previous: 10%) – pressured by the expected loan write-off following the implementation of IFRS 9, a trend we have observed across all the banks that have released Q1’18 results so far. With our 5% y/y Operating Expense growth expectation, we anticipate a 100bps moderation in Cost to Income ratio to 53% for FY’18. Overall, we forecast a significant rise in PAT to ₦149 billion for FY’18 – translating to an EPS of ₦4.16.