Though the nine months (9M) scorecard of FCMB Group Plc could not meet most analysts’ expectations, but its recent acquisition of additional 60percent equity stake in Legacy Pension Managers Limited (Legacy) has impacted positively on the stock valuation.
Nine months scorecard
In the nine months period to September 30, 2017, its gross revenue was N118.8 billion, a decrease of 15.57percent from N140.7billion achieved in the corresponding period of 2016. This decline, according to the institution, was primarily influenced by the exceptional foreign exchange (FX) revaluation income in 2016.
Fee and commission income was N15.549billion against N13.373billion in the corresponding nine months period of 2016, up by 16.27percent. Profit before minimum tax and income tax (PBT) dropped by 51.74percent to N6.841billion from N14.175billion in 9M’16; while Profit After Tax (PAT) at N5.468billion from N12.981billion represented 57.87percent decline. The HoldCo’s shareholders Fund increased by 4.69percent, to N183.082billion from N174.877billion in 9M’16.
Legacy Pension acquisition
Last week’s acquisition increased FCMB Group Plc stake in Legacy Pension Managers from 28.2percent to 88.2percent. The transaction follows the approvals of the Central Bank of Nigeria (CBN), the National Pension Commission (PenCom), and the Securities and Exchange Commission (SEC).
Legacy Pension Managers Limited is licensed by the National Pension Commission, to carry on business as a Pension Fund Administrator (PFA). It has over N220 billion assets under management comprising, retirement savings accounts, retiree accounts as well as privately managed pension funds for institutions. It has over 350,000 pension contributors which it services from 48 locations across the country.
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Analysts view on Legacy Pension acquisition and FCMB stock valuation
In a recent equity research, Olalekan Olabode-led team of analysts at Vetiva Capital Management Limited want investors to buy the shares of FCMB Group Plc. Vetiva raised its Target Price (TP) for FCMB Group Plc shares to N3.23 (previous: N2.93). This is a remarkable increase from current price of N1.07 as at this week open. Vetiva analysts recalled that FCMB acquired additional 60percent interest in Legacy Pensions Managers Limited last week, taking its stake in the firm to a controlling holding of 88.2percent.
“We expect the acquisition to further enhance the Group’s diversification strategy and support profitability going forward,” Vetiva analysts said.
The analysts stated: “We highlight that despite 9M’17 earnings coming in significantly weaker year-on-year (y/y) and lagging most of our estimates, quarter-on-quarter (q/q) performance showed a modestly improving trend in Q3’17. Particularly, interest and non-interest income recorded mild q/q growth to support a 6percent q/q rise in Gross Earnings,” Vetiva analysts noted. They added, “Overall, Q3’17 PAT came in 70percent higher q/q at N2.5 billion–taking 9M’17 performance to N5.5billion (Vetiva estimate: N6.7 billion).”
Also, Tunde Abidoye’s team of analysts at FBNQuest in their first reaction to FCMB Group results said the HoldCo’s earnings will receive a boost following recent acquisition of Legacy Pension Managers.
“FCMB Group’s (FCMB) Q3 2017 results were broadly in line with our forecasts. Nevertheless, we have increased our 2017-18E earnings forecasts by around 7percent on average on the back of the expected boost to earnings from the consolidation of Legacy Pensions Managers (Legacy).
“Although management did not quantify expected (revenue) synergies, it disclosed that Legacy is on track to deliver circa N1.3billion in PBT in 2017E. Besides Legacy, a reduction in our 2017E cost-of risk assumption to 2.7percent from around 3percent previously is also supportive of earnings”, FBNQuest said.
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“Our 2017E operating expense (opex) is up by around 2percent due to the inclusion of our opex estimate for legacy. These revisions underpin the 4percent increase to our price target to N1.50. We now expect FCMB to deliver an Return on average equity (ROAE) of 5.4percent in 2017E, around 40basis points (bps) higher than our previous forecast. Although the shares have underperformed the All Share Index (ASI) year-to-date (ytd) (-2.7percent ytd versus 38.8percent ASI) and our price target implies a potential upside of around 40percent from current levels”, FBNQuest stated.
FBNQuest analysts retained their Neutral rating on FCMB Group stock, saying that they would like to see sustained improvement in the bank’s underlying performance first because changing their recommendation. By being neutral in their valuation, FBNQuest analysts expect the FCMB stock to perform in line with the Nigerian Stock Exchange (NSE) All Share Index (ASI) over the next 12 months”.
About the Group
With a Market Capitalisation in excess of N21.18billion and shares outstanding of 19,802,710,754 units, FCMB Group Plc is listed on other financial institutions subsector of the financial services sector. The share price had reached a 52-week high of N1.55 from a 52-week low of 92kobo. FCMB Group Plc is a non-operating financial holding company, regulated by the Central Bank of Nigeria (CBN).
The Group subsidiaries include: First City Monument Bank Limited, FCMB Capital Markets, CSL Stockbrokers Limited, CSL Trustees Limited, First City Asset Management Limited, FCMB Microfinance Limited and now, Legacy Pension Managers Limited. FCMB Group has over 4.3 million customers and 204 branches in Nigeria and a banking subsidiary in the United Kingdom through FCMB Bank (UK) Limited (which is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA in the United Kingdom.
Iheanyi Nwachukwu
