EUR 48.04 For Business Accounts Only

FCMB GROUP PLC - Weak top line pressure earnings

• ​FCMB released Q1’16 results, lagging our already modest expectation as pressure persisted across key line items. Although we saw impressive cost containment as OPEX came in flat y/y and q/q (just in line with our N16 billion estimate) and Interest Expense declined 20% y/y (13% better than our estimate), significant top line pressure capped bottom line. With both Interest and Non-Interest Income down 12% and 19% y/y respectively (2% and 17% behind our estimate), Gross Earnings declined 13% y/y and 20% from Q4’15 - 2% behind our forecast. Despite the moderation in Interest Expense, Net Interest Income was down 5% y/y to N17.2 billion albeit ahead of our N16.1 billion estimate. PBT declined 62% y/y, coming in just in line with our N2.2 billion estimate. However, with an effective tax rate of 25% vs. prior year’s 9% and our 16% forecast, PAT declined 69% y/y to N1.6 billion – 10% behind Vetiva and Consensus estimates of N1.8 billion and N2.2 billion respectively. 

• We have updated our model for the earnings miss across key line items. Whilst we are impressed by the moderation in cost, we are less optimistic about top line growth in FY’16. Pressured by the weak deposit growth (down 6% in Q1) amidst the tough operating environment, we revise our credit growth forecast to a 4% decline (Previous: 3% growth). Consequently, we estimate a 9% y/y decline in Gross Earnings to N138 billion. However, we maintain our CIR forecast at 71%. We remain cautious of rising NPLs in FY’16. With loan loss provision 9% ahead of our estimate, we revise our CoR estimate to 2.3% (Previous: 2.0%). Overall, we anticipate a 107% growth in bottom line (occasioned by the low FY’15 base) – translating to FY’16 EPS of N0.50. FCMB trades at a 2016E P/E and P/B of 2.0x and 0.1x compared to our coverage banks’ averages of 3.2x and 0.4x respectively.