FCMB GROUP PLC H1'22 Earnings Release - Higher interest rates drive strong Profit growth

Higher interest rates drive strong Profit growth                                                   

In FCMB’s recently released H1’22 results, the company reported a 34% y/y growth in Gross Earnings to ₦126.2 billion. This came as a result of expansion across both Interest Income (+35% y/y) and Non-Interest Revenue (+31% y/y) lines. The growth in revenue was mainly driven by a jump in income from investment securities, which more than doubled y/y. On the other hand, growth in Interest Expenses was slower, coming in 28% higher y/y at ₦37.9 billion, as interest paid on interbank deposits shrank 66% to ₦2.2 billion, dampening the effect of the 91% jump in interest paid on deposits.

Meanwhile, the bank’s Non-Interest Revenue (NIR) growth was caused by a 132% jump in net trading income, with T-bill trading the biggest contributor. We note that a change in sentiment occurred in the later part of H1, as investors began to return to the FI market as yields began to rise at a faster pace. However, FCMB did report a net loss in foreign-exchange revaluations of ₦1.3 billion, down from the net positive figure reported in H1’21.                                                         

Full-year estimates improved after interest rate hike

Thanks to the rise in interest rates, we expect FCMB’s full year results to improve, as higher yields in the FI space drive both interest and non-interest revenue growth. Therefore, we revise our FY’22 Interest Income estimate to ₦194.8 billion (Previous: ₦186.2 billion), while maintaining our Interest Expense estimate to give a new Net Interest Income projection of ₦120.0 billion (Previous: ₦111.5 billion). Furthermore, we raise our NIR projection to ₦55.9 billion (Previous: ₦49.3 billion) on the back of H1’s earnings beat.

Conversely, we have adjusted our full-year cost estimate to ₦123 billion from ₦118 billion based on H1 run rate, while also increasing our loan loss impairment projection to ₦18.7 billion from ₦8.2 billion as we anticipate another high impairment figure in Q4’22 based on historical precedent. However, we maintain our FY’22 profit projections, with PBT of ₦34.4 billion and PAT of ₦₦29.6 billion.