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FBN HOLDINGS PLC H1'18 - Strong q/q recovery as earnings beat estimates

Strong q/q recovery as earnings beat estimates                                                                               

FBNH released its H1’18 results, reporting an improvement on the unconvincing start from Q1’18. Top and bottom line both came in ahead of our estimates with the PAT deviation even more pronounced. Whilst Interest Income moderated 3% y/y to ₦225 billion (much in line with our estimate), Non-Interest Income came in strong – up 21% y/y to ₦61.3 billion (Vetiva: ₦50.5 billion) following a notable 59% q/q rise in Q2’18. Consequently, Gross Earnings rose mildly by 2% y/y to ₦293 billion (Vetiva: ₦275 billion) following an 11% q/q rise in the top line. We highlight that despite the improvement in general business environment in Q2’18, loan book moderated 3% q/q within the period (Ytd: -7%), an observation that is consistent across all the banks that have released H1’18 results so far. Notably, management attributed the strong growth in Non-Interest Income to growing income from their digital banking channels. The income line now accounts for c.24% of Non-Interest Income vs. c.13% as at FY’16.                                              

Following better than expected performance in Q2’18, we have revised our estimates across most of the line items. Although we cut our loan growth estimate to -2% (Previous: 3%) and raise our average yield on asset estimate to reflect our expectation for H2’18, our Interest Income estimate remains largely unchanged. That said, we raise our Non-Interest Income forecast to reflect the stronger growth in H1’18 and maintain the run rate for the second half of the year. Also, we raise our Interest Expense following the miss in H1’18. More notably, we cut our loan loss provision to ₦102 billion (Previous: ₦121 billion) following H1’18 trend – translating to a cost of risk of 5.2%. We also revise our Operating Expense estimate higher to reflect the miss in H1’18. Overall, we revise our PAT estimate higher to ₦79.3 billion for FY’18 – translating to an EPS of ₦2.21. Consequently, our Target Price (TP) is raised to ₦13.53 (Previous: ₦12.82). FBNH trades at FY’18 P/B and P/E ratios of 0.5x and 4.5x vs. Tier I averages of 0.8x and 4.7x respectively.                                                                            

First Bank of Nigeria Holdings (FBNH) PLC is the second 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.