EUR 56.22 For Business Accounts Only

FBN Holdings PLC - Huge impairment loss sinks earnings

• FBNH released 9M’16 results showing mixed performances across key line items. Whilst top line rose 7% y/y to N417 billion – beating our modest N368 billion estimate, PAT declined 15% y/y to N42.5 billion vs. Vetiva: N43.3 billion and Consensus: N50.7 billion. Notably, the modest top line growth was largely supported by the spike in Non-Interest Income (thanks to FX trading income and revaluation gains), up 57% y/y to N131 billion vs. Vetiva N111 billion estimate. The Group however reported a mildly subdued Interest Income, down 7% y/y as the impact of the relatively puffed loan portfolio was offset by lower yield on interest bearing assets (YoA 9M’16:10.2% vs. 9M’15:12.0%). On a positive note, Interest Expense moderated significantly, down 30% y/y following modest optimization of deposit mix with Cost of Fund (CoF) down to 2.7% (9M’15: 4.0%). Although Operating Expense remained contained y/y and much in line with our forecast, the key pressure point remained the loan loss provision which raced father north – up 146% y/y to N115 billion, dwarfing our already bearish N88.7 billion estimate. Overall, PAT declined 15% y/y – 2% and 16% behind Vetiva and Consensus estimates respectively.
• We revise our PAT forecast for FY’16 to N42.5 billion (Previous: N77 billion). Whilst we do not expect the banking subsidiary (FirstBank) to pay dividend given that its NPL ratio has already breached regulatory benchmark of 10%, we forecast a DPS of N0.20 for FY’16 – coming from other subsidiaries. Overall, we revise our Target Price (TP) to N6.61 (Previous: N7.10). FBNH trades at FY’16 P/B and P/E ratios of 0.2x and 2.5x vs. Tier I averages of 0.6x and 3.3x respectively.