FCMB GROUP PLC Q1'20 Earnings Release - Solid first quarter earnings translate to 31% y/y PAT growth

Solid first quarter earnings translate to 31% y/y PAT growth                                                    

FCMB recently released its unaudited Q1’20 earnings, reporting a 12% y/y increase in Gross Earnings to ₦49.2 billion (Vetiva estimate (₦45.1 billion). This was thanks to a 11% y/y gain in Interest Income to ₦38.3 billion, driven majorly by a 10% y/y increase in interest from loans to ₦25.9 billion. With Interest Expense declining 4% y/y to ₦15.2 billion, Net Interest Income came in higher at ₦23.1 billion (up 24% y/y), beating our estimate of ₦19.1 billion. Meanwhile, the bank also posted 14% y/y growth in Non-Interest Income to ₦10.9 billion (Vetiva estimate: ₦11.5 billion) thanks to a 9% y/y increase in Fees and Commissions to ₦7.3 billion as well as a 195% y/y jump in FX revaluation gains to ₦1.4 billion. However, as expected the bank reported a 61% rise in net loan loss provisions to ₦3.7 (Vetiva estimate: ₦3.8 billion), mainly due to a 69% y/y decline in write-backs. Meanwhile the bank’s Operating Expenses climbed 16% y/y to ₦24.9 billion (Vetiva estimate: ₦22.3 billion), although this was generally due to increases in general admin and regulatory expenses. Ultimately, these led to a 26% y/y growth in PBT to ₦5.4 billion (Vetiva estimate: ₦4.5 billion) and a PAT of ₦4.7.3 billion, a 31% y/y growth, giving an EPS of ₦0.24

FY’20 forecast bearish despite solid first quarter

Despite the earnings beats across several line items, we have refrained from an upwards revision of our projections due to the weak economic outlook and general expectations of declines in earnings across the banking sector. Importantly, the bank’s 7% q/q growth in Loan book should support somewhat stable interest income in the coming quarters, however, this will likely be offset by an increase in defaults and write-offs due to poor economic activity. Furthermore, given Q1’20 run rate, we expect Opex to track higher in 2020, unless management discloses plans for a cost saving in the coming quarters, therefore we raise our FY’20 Opex projection to ₦88.4 billion (Previous: ₦85.7 billion).