FCMB GROUP PLC Q1'17 - Earnings miss, pressured by below estimate top line growth

​FCMB released its Q1’17 result, reporting weaker than expected top and bottom line performances. Although Gross Earnings rose 12% y/y to ₦38 billion, the top line performance came in 7% behind our ₦41 billion estimate. The deviation from estimate was driven by the lower than expected Interest and Non-Interest Income – both missing our estimates by 8% and 16% respectively. Amidst constrained top line performance, Interest Expense pressure persisted, up 26% y/y and 6% ahead of our estimate. Consequently, Net-Interest Income moderated 9% y/y to ₦15.5 billion – 18% behind our ₦18.9 billion estimate. Furthermore, amidst a better than expected loan loss provision (₦5.0 billion vs. Vetiva estimate of ₦5.2 billion), Operating Income came in weaker, down 3% y/y and 20% behind our estimate. Also, despite the mild y/y moderation in Operating Expense to ₦16.3 billion vs. our ₦17.0 billion estimate, PBT came in 10% lower y/y at ₦2.0 billion – 66% weaker than our ₦5.8 billion estimate. Overall, bottom line bowed to pressure – coming in slightly lower than the dismal ₦1.6 billion reported in the corresponding period of 2016 and 68% behind our ₦5.0 billion estimate.

Whilst we highlight the cost burden on the Interest Expense line – as elevated interest rate environment pressures Cost of Funds (CoF) – we note that the earnings miss was largely driven by weaker than expected Interest and Non-Interest Income – an occurrence that deviated from the trend observed across other banking names. With this, we have revised our Interest and Non-Interest estimates lower to reflect the earnings deviation. Also, we raise our Interest Expense to ₦55.7 billion (Previous: ₦53.9 billion). Despite the flat loan book recorded thus far, we maintain our 5% real credit growth forecast for FY’17. With loan loss expense coming marginally lower than our estimate, we cut our FY’17 provisioning to ₦24.3 billion (Previous: ₦25.8 billion) – translating to a Cost of Risk of 3.6%. Amidst a flat OPEX forecast, we estimate a Cost to Income Ratio of 65% for FY’17 (Previous: 64%). Overall, we forecast a PAT of ₦9.1 billion (Previous: ₦14.8 billion) for FY’17– translating to an EPS of ₦0.46. FCMB trades at an FY’17 P/E and P/B of 1.1x and 0.1x respectively.