Fidelity Bank plc is one of the banks listed on the main board of Nigerian Stock Exchange (NSE). The bank which is listed on the banking subsector has a market capitalisation in excess of N40.274billion; with shares outstanding of 28,974,797,023 units.
As at early this week, the share price of the bank was relatively down by 2.88percent to N1.39 as against last week’s close. Analysts tracking of Fidelity Bank plc share price movement revealed a 52-week high of N2.27 and 52-week low of N1.33 –though an indication of a spillover effect from investors waning appetite for stocks.
Returns from shares of Fidelity Bank plc shown at 14.8 percent early this month according to analysts seems to track the performance of the larger market index (NSE ASI) which has further lowered in excess of 17percent in return.
Fidelity Bank is among the banks that make up the basket of NSE Banking Index which is designed to provide an investable benchmark to capture the performance of the banking sector. NSE Banking index comprises the most capitalised and liquid companies in banking. NSE Banking Index was down by 3.39percent to 295.30points last Tuesday.
Recently at the Nigerian Stock Exchange, Fidelity Bank plc released its results for the third quarter (Q3) to September 30, 2015.
The result
The bank gross earnings grew from N96billion in the Q3 period of 2014 to N106.6billion in the third quarter of 2015. Profit after Tax (PAT) rose by 1.8 percent to N11.4 billion as against N11.2 billion in the comparable period of 2014.
Profit before income tax from continuing operations rose to N13.789billion from N13.389billion in Q3’14. Fidelity Bank reported Q3’15 Net Interest Income (NII) of N40.605billion, from N36.658billion in Q3.14. Other operating expenses rose remarkably to N44.756billion from N40.473billion in Q3’14.
Further look at the bank’s statement to the Nigerian Stock Exchange and shareholders on its unaudited results for the period ended September 30, 2015 shows that total equity increased to N180.3 billion from N168.62billion in Q3’14.
Analysts view on the Q3’15 results
Olubunmi Asaolu led team of research analysts at FBNQuest said Fidelity Bank plc PBT and PAT missed their estimates by 12percent and 18percent respectively.
“We have had our doubts all year about the previous return-on-equity (ROE) target. Going forward, we have cut our 2015E earnings by low single digits, but our 2016E forecast by 8.5percent (hence the 9percent cut to our price target to N2),” FBNQuest analysts said in their recent note titled “Fidelity Bank Q3 2015 results review: Sub-10% ROE still the status quo”.
“These cuts reflect the impact of our expectation of a more subdued outlook in general and negative surprises in opex (operating expenses) offsetting some visible positives, namely higher net interest margins and lower-than-expected loan loss provisions. We should add that we still expect provisions to pick up in Q4 to c. N3bn from a 9M quarterly average of N1.3bn. We continue to expect the shares to track the index, despite our end-2016 fair value implying 46percent upside potential from current levels, until the market believes the ROE will improve,” the analysts added.
Management comments on the Q3’15 results
Commenting on the result, Nnamdi Okonkwo, Managing Director and Chief Executive Officer, Fidelity Bank plc stated that business operations during the period under review were constrained by regulatory and economic pressures arising from currency devaluation concerns, tight monetary stance, and implementation of the Treasury Single Account (TSA).
This situation, Okonkwo explained, had culminated in negative earnings in the banking sector. He however, expressed great optimism in the new business model which the Bank adopted and which resulted in a year-on-year (y-o-y) growth in both fund and fee based income resulting in a 3 percent growth in profitability. “Despite these challenges we continued with the disciplined execution of our medium term strategy. Profit before Tax (PBT) increased to N13.8bn despite the decline in our total assets due to the TSA implementation”.
Interestingly, net interest income increased by 10.8 percent y-o-y to N40.6 billion but declined by 4.8 percent q-o-q due to the reduction in its earning assets. Okonkwo, however pointed out that the bank continued to increase yields on earning assets faster than growth in funding costs, which improved its NIM (Net Interest Margin) to 6.9 percent in third quarter of 2015. This growth put the bank in pole position to attain its 2015 target of 7.0 percent.
According to Okonkwo, Net Fee Income increased by 7.7 percent y-o-y to N21.4 billion but declined by 4.2 percent quarter-on-quarter (q-o-q) due to lower FX (Foreign Exchange) Income on the back of trading restrictions in the market. Alluding to the impact of the Bank’s current retail strategy in driving revenues, he stated: “Electronic banking income increased by 128.4 percent y-o-y to N4.5 billion and 115.4 percent q-o-q”, adding that this was driven essentially by the deployment of the Bank’s innovative online banking application, increased migration of customers to alternate electronic channels as well as a rise in international card transactions.
He further explained that total expenses grew by 10.3 percent y-o-y to N44.8 billion and 6.3 percent q-o-q driven by cost lines like staff remuneration, regulatory costs (NDIC/AMCON) and branding/advertisement costs. Cost-Income Ratio declined to 71.6 percent in 9M 2015 from 74.2 percent in the 2014 FY as revenue growth outpaced the increase in operating cost. Net Loans, on the other hand, grew marginally by 1.1 percent YTD to N547.7 billion but declined by 4.4 percent q-o-q. “This is as a result of customer pay-downs, amplified by the re-alignment of their respective business model and a cautious approach to asset creation in consonance with the weaker macro environment”, he said.
Okonkwo also noted that the Cost of Risk amounted to 1.0 percent while the Bank improved its coverage ratio. NPL Ratio remained within the Bank’s guidance at 3.7 percent. Total Deposits declined by 6.6 percent YTD to N765.8 billion and 3.9 percent q-o-q due to regulatory initiatives like the implementation of the TSA which impacted the Bank’s deposit base by about N75 billion during the quarter.
Despite all these challenges, the Bank Chief said that the Bank is committed to keeping its promise to its customers. In September, the bank unveiled its new corporate identity that portrays its positive personality with a view to positioning the brand in a highly competitive market. “Our new corporate identity”, Okonkwo said, “is inspired by our past with our eyes set on the future and always staying true to our vision. Our new identity comes with a renewed brand promise….”your aspiration may prove to be a tough job but someone’s got to do it”.
Iheanyi Nwachukwu
