FCMB GROUP PLC Q1'19 - Write-Backs Boost PAT Growth

Write-backs boost PAT growth                                                        

FCMB released its Q1’19 earnings, with top line trailing our estimate slightly while bottom line outperformed. While Gross Earnings fell short of our estimate by 9% (+4% y/y), PAT came in 16% higher than we expected (+40% y/y). The top line miss was majorly driven by Non-Interest Income, which missed by 9%, declining 0.2% y/y to ₦9.5 billion. This was due to a 90% decline in Foreign Exchange Income and a 61% decline in gains from revaluation of foreign currency assets. Meanwhile, Interest Income, which fell below our estimate by 3%, rose 5% y/y to ₦34.4 billion despite a 3% drop in Loan Book to ₦615.2 billion. Net Interest Income came in line with our estimate, 5% higher y/y at ₦18.6 billion. More importantly, the bank posted stronger than expected PBT growth, driven by a decline in loan loss provision, 46% below our estimate at ₦2.3 billion. This was boosted by write-backs of ₦2.1 billion, a 59% y/y increase. As such, despite a 14% deviation in Operating Profit, PBT came in 3% higher than our estimate at ₦4.3 billion. Overall, PAT outperformed our estimate by 14%, coming in at ₦3.6 billion, due to a lower effective tax rate of 15.8% (Vetiva estimate: 22.9%).                                            

We have revised our estimates to reflect the deviation in Q1 numbers across key line items. With the stronger than expected moderation in provisioning, we revise our loan loss forecast to ₦12.5 billion for FY’19 (Previous: ₦13.9 billion). We also revised lower our interest income growth estimate to 10% for FY’19 (Previous: 12%). Following this, we lowered our Interest Expense forecast lower to ₦64.9 billion (Previous: ₦66.0 billion). Consequently, we estimate an Operating Income of ₦128.3 billion for FY’19. We also maintain a dividend of ₦0.18 per share for FY’19 (payout ratio of 19.5%). We revise our target price higher, albeit marginally to ₦2.94 (Previous: ₦2.87) and reiterate our BUY recommendation on the stock.