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FCMB GROUP PLC H1'18 - On Track For Recovery, Strong Q/Q Performance Maintained

On track for recovery, strong q/q performance maintained                                                                        

FCMB released its H1’18 results, with earnings coming in line with our estimates, following stronger q/q performances. Although Gross Earnings came in relatively flat q/q at ₦42 billion in Q2’18, the top line for H1’18 closely tracked our estimate at ₦84 billion – 8% ahead of previous year’s figure. With Interest Income (₦64 billion) contained at a y/y growth of 3% (down 3% q/q) following another 2% q/q moderation in loan portfolio (down 10% ytd), Gross Earnings was supported by a strong 28% y/y rise in Non-Interest Income to ₦16.5 billion – just in line with our estimate. Despite modest uptick in the interest rate environment in Q2’18, Interest Expense moderated 5% q/q, taking the expense line to ₦29.0 billion for H1’18, down 3% y/y and better than our ₦30.4 billion estimate. Furthermore, supported by a ₦1.9 billion write back from claims previously written off, Loan Loss Provision was down 49% q/q to ₦2.5 billion in Q2’18. Cumulatively, the loan loss expense line came in at ₦7.3 billion for H1’18 – down 26% y/y and 25% better than we had expected.                                                                          

With earnings coming well in line with our estimates, we have marginally revised our estimates across most line items. Following further moderation in loan portfolio in Q2’18, we cut our loan growth forecast for 2018 and estimate a y/y moderation of 5% the period (Previous: -2%). With this, we revise our Interest Income marginally lower to ₦132 billion despite our expectation of a modest uptick in yield on asset in the second half of year. Also, supported by improving macroeconomic environment, we expect further improvement in asset quality across the industry and cut our loan loss provision estimate for FY’18 to ₦15.6 billion (Previous: ₦19.4 billion). However, we maintain our expectation of a faster run rate in H2’18 than the first half of the year. With Operating Expense coming in ahead of our estimate in H1’18, we raise our forecast for 2018 to reflect the higher than expected run rate. Hence, we estimate a Cost to Income ratio of 66% for FY’18 (FY’17: 67%). Overall, we estimate a PAT of ₦17.1 billion for FY’18, translating to a y/y growth of 82% - supported by the low base from FY’17.                                                                     

FCMB Group Plc is a non-operating financial holding company, regulated by the Central Bank of Nigeria ("CBN"). FCMB Group Plc was formed in response to the CBN's regulation on the scope of banking activities and ancillary matters ("Regulation 3"), which requires banks to divest their non-banking businesses, or retain them under a holding company ("Hold Co.") structure approved by the CBN.