FREE

FCMB GROUP PLC FY'17 - Earnings drag as Non-Interest Income normalizes

Earnings drag as Non-Interest Income normalizes                                                          

FCMB released its FY’17 earnings, with Gross Earnings coming in 9% stronger than we had anticipated at ₦169.9 billion (albeit 4% weaker y/y), following better than expected top line growth in the last quarter of the year. Notably, whilst Interest Income grew 6% to ₦132.4 billion (beating our ₦123.6 billion estimate), Non-Interest Income moderated 33% y/y to ₦32.1 billion – a normalization from the spike recorded in 2016 as FX revaluation gains moderated to ₦8.7 billion (FY’16: ₦29.3 billion). With Operating Expenses coming in higher than we had anticipated at ₦68.7 billion (Vetiva: ₦65.7 billion) following a 10% q/q rise in Q4’17, PAT declined 34% to ₦9.4 billion - 18% behind our ₦11.5 billion estimate. Overall, Board of Directors proposed a dividend ₦0.10 per share – same as FY’16.           

           

We have updated our model to reflect the deviations across key line items. In line with management’s guidance, we revise our loan growth forecast for 2018 to flat (Previous: 4%). With this, we estimate a mild y/y decline in Interest Income to ₦131 billion (FY’17: ₦132 billion) amidst expectation of moderation in yield of assets. However, in line with improving operating environment and expectation of better transaction turnover, we estimate a 10% y/y growth in Non-Interest Income. Overall, our top line forecast comes to ₦168 billion for FY’18. With our mild 2% y/y growth forecast for Operating Expense, our forecast translates to a 100bps improvement in cost to income ratio at 66%. Overall, our PAT estimate of ₦12.6 billion is a 33% y/y growth in bottom line (supported by the low base of FY’17) – translating to FY’18 EPS of ₦0.63. We maintain a dividend of ₦0.10 per share for FY’18 (payout ratio of 15%). We revise our target price lower to ₦4.49 (Previous: ₦5.06).