FBN Holdings PLC Q1'18 - Unconvincing start to the year as earnings miss estimates

Unconvincing start to the year as earnings miss estimates                                                                          

FBNH released its Q1’18 results, posting weaker than expected performances across most line items. Particularly, Gross Earnings moderated 2% y/y to ₦139 billion – weaker than prior quarter’s ₦154 billion and our ₦153 billion estimate. The unconvincing top line performance was driven by weaker than expected performances from both Interest and Non-Interest Income lines. Whilst Non-Interest Income rose by a marginal 1% to ₦23.6 billion, the income line was 27% and 40% lower than our ₦32.4 billion estimate and prior quarter’s ₦39.5 billion. Also, Interest Income moderated 3% y/y and 2% q/q to ₦111 billion – missing our ₦120 billion estimate. With Interest Expense coming largely in line with our estimate at ₦35.2 billion, Net Interest Income was down 6% y/y to ₦75.7 billion (below our ₦85.5 billion estimate). Furthermore, with Operating Expense coming in at ₦55.2 billion - better than our ₦64.9 billion estimate, PBT was down 6% y/y to ₦18.8 billion – significantly missing our ₦41.9 billion estimate. Overall, PAT was down 9% y/y to ₦14.8 billion – behind our ₦35.2 billion estimate.                                                                        

We have revised our estimates across most line items to reflect the earnings miss. Most notably, we raise our loan loss provision to ₦121 billion (Previous: ₦44.3 billion) following Q1’18 trend and in line with management guided cost of risk of 6.0%. Also, with the one-time write-off coming in lower than we had expected, we raise our loan growth forecast marginally higher to 3% (Previous: 0%). Overall, we revise our PAT estimate lower to ₦58.3 billion for FY’18 – translating to an EPS of ₦1.62. Consequently, our Target Price (TP) is revised lower to ₦12.82 (Previous: ₦15.88) – FBNH trades at FY’18 P/B and P/E ratios of 0.6x and 7.7x vs. Tier I averages of 1.0x and 4.7x respectively.