FCMB GROUP PLC Q1'18 -Earnings track estimates, PAT rose 64% y/y

Earnings track estimates, PAT up 64% y/y                                                                            

FCMB released its Q1’18 earnings, with top line and bottom line performances coming in largely in line with Vetiva’s estimates. Gross Earnings and PAT rose by 10% and 64% y/y to ₦42.2 billion and ₦2.6 billion respectively. We however note that results came in weaker q/q with top line and bottom line down 17% and 34% respectively. Contributing to y/y top line growth, Interest Income came in line with our expectation – up 9% to ₦32.6 billion despite a notable 10% drop in Loan Book to ₦595.8 billion. Also, though lagging our estimate by 11%, Non-Interest Income grew a modest 6% y/y to ₦8.1 billion as one-off income from PPE disposal and previously written off receivables normalized. Furthermore, with Operating Expenses coming in 3% lower than we had anticipated at ₦17.7 billion (up 9% q/q), PAT advanced 64% to ₦2.6 billion – in line with our estimate.                                                                              

We highlight that earnings came largely in line with our estimates and as such, we maintain our forecasts across most line items. We note the 10% moderation in loan portfolio following the implementation of IFRS 9. Consequently, we revise our loan growth forecast to -2% for FY’18 (Previous: 0%). Furthermore, we cut our Operating Expense estimate to ₦68.3 billion (Previous: ₦70.0 billion) – translating to a 200bps moderation in Cost to Income Ratio to 65%. We maintain a dividend of ₦0.10 per share for FY’18 (payout ratio of 14%). We revise our target price marginally higher to ₦4.66 (Previous: ₦4.49). We remain optimistic about the medium to long term outlook on FCMB and believe the stock remains largely undervalued. FCMB trades at an FY’18 P/E and P/B of 3.5x and 0.3x vs our coverage banks’ averages of 5.9x and 0.9x respectively.