Background
Incorporated in 1987 as a private limited company with a merchant banking license, Fidelity Bank has since evolved to become a publicly listed bank aspiring to be a top tier Nigeria bank through organic and inorganic means.
In line with CBN banking model, Fidelity bank currently has an international banking license and operates a bank only entity.
The bank has a widely distributed banking presence with over 213 branches across Nigeria, a balance sheet size of N1.04 trillion and a deposit base of N752.27 billion (as at March 2014).
It has strong public sector relationships and is mainly focused on Small and medium Enterprises (SME) sector with specialized products aimed at deepening SME banking.
In May 2013, Fidelity Bank concluded a $300 million Eurobond capital raise.
Financial performance for 1Q14
Fidelity Bank is one of the earliest financial institutions to release its first quarter 2014 results.
The tier II bank has not been able to weather the regulatory headwind besetting most financial institution in Nigeria as both top and bottom line performance were unimpressive.
For the first quarter March 2014, the bank’s gross earnings dropped by 1.52 percent y/y to N30.95 billion from N31.43 billion same period of the prior year (Q1’2013).
The results reaffirms analysts expectation as the bank recorded a 5 percent single digit growth in gross earnings in FY13.
Profit before tax (PBT) for the three months period through March 2014 slumped by 25.08 percent to N4.45 billion from N5.94 billion in 1Q 2013.
Earnings per share EPS also declined to 13.1k in 2014.
The unimpressive top and bottom line performance also affected returns to shareholder as return on average equity (ROAe) shrank to 2.26 percent in Q1’14 from 2.85 percent in Q1 13.
In addition, the return on average assets (ROaA) slid to 0.363 percent from 0.502 percent in 1Q14.
Net margin, a measure of profitability and efficiency tumbled to 12.21 percent in 1Q14 as against 15.10 in1Q13.
Interest incomes were up by 26.63 percent y/y to N26.27 billion in 1M14 as against N20.74 billion in 1M13, while interest expense grew slightly by N5.92 percent to N13.36 billion in the review period.
The 44.0 percent drop in income tax in Q1 2014 couldn’t help profit after tax as it plummeted by 20.42 percent y/y to N3.78 billion in the review period from N4.75 billion in 2013.
The ability of the bank to able to minimize interest expense help spike Net interest income by 95.94 percent y/y to N12.90 billion in Q12014 compared to N6.58 billion as at Q1’2013.
The greatest impediments to Fidelity’s profitability is its operation expenses whose figure nearly equals net interest income’ of N12.90 billion.
Operating expenses surged by 14.80 percent y/y to N12.72 billion in 1Q14 compared to N11.08 billion in 1Q13.
Consequently, operating expense ratio (OPEX) in the review period climbed to 41.09 percent in 1Q14 as against 35.25 percent in 1Q13.
The above highlights the need for the bank to carry out a corporate restructuring exercise if it wishes to join the top big banks.
Fidelity’s total assets jumped by 10.26 percent y/y to N1.04 trillion in 1M14 as against N945.1 billion in 1M13.
Deposits to customers remained flat at less than one percent to 12.5 percent year on year to N752 billion.
Total loans and advances to customers in the review period were up 26.1 percent year on year to N509.41 billion in 1M14 from N402.85 billion in 1M13.
Based on BusinessDay analysis, loans to deposit ratio jumped to 67.71 percent in 1Q14 compared to 53.73 percent in 1Q13.
Share Performance and Outlook
The bank’s share price closed at N1.97 on April 17th 2014 on the floor of the Nigeria Stock Exchange.
Fidelity had a market capitalization of N57.08 billion on the same day, while share outstanding were 28.97 billion ordinary shares.
Current Price earnings Ratio and estimated P/E ratio (12/2014) were 7.390x and 3.3x respectively. The bank has a price to book ratio of 0.35 and price to sales ratio of 0.45 according to data compiled by Bloomberg.
Fidelity is giving back to owners of the business as its board of Directors is proposing a dividend of 14k on the 18th of April 2014 according to a corporate statement posted on the website of the exchange.
BALA AUGIE
