Fidelity Bank Plc recently released its earnings report for the half-year ended June 30, 2020, with better than expected numbers that came later than the of the corresponding period of 2019.
The numbers showed a decade of earnings undulation that reflects headwinds in the Nigerian economy and banking sector.
| 10 Years Historical Data of Fidelity Bank’s H1 EPS Movement | ||||||||||
| Year | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| EPS | 0.32 | 0.52 | 0.63 | 0.55 | 0.57 | 0.39 | 0.31 | 0.41 | 0.29 | 0.39 |
| Int’ Div | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
The review of the scorecard revealed bottom line grew by 33.01% to N11.3 billion, from N8.50 billion in 2019; significantly faster than the 2.03% marginal rise in top line from N103.66 billion to N105.76 billion. The improvement in net profit arose from the management’s decision to change business model and solidified risk management in a bid to mitigate the impact of coronavirus outbreak on the economy.
Specifically, interest income and trading gains supported the earnings yield of 21.99%, as against 17.67% in 2019, driven by increased advances and deposits. Net asset for the period improved by 16.29% to N250.69 billion, above the new minimum capital set for the Nigerian banking industry even at half-year.
It is noteworthy also that Fidelity Bank’s relatively low non-performing loan ratio reflects improvements in asset quality within the period, even as we note the possible impact of the challenging business environment worsened by the low interest rates in Treasury bills, and oscillating oil price for the period, among other factors.
Earnings per share estimates for the period translated to 0.39 kobo, better than the 0.29 kobo reported in the similar period of 2019, just as improvement in earnings during the period shortened investors’ waiting period slightly with Price Earnings ratio at 1.16x, compared to 1.41x. The said Earnings yielded 21.99% as of released date, the share price on the Nigerian Stock Exchange rose by 9.03 percent, just as return on equity increased from 3.94% in 2019 to 4.51% in 2020. Profit margin for the period improved by 10.69% from 8.20% in the previous year, representing an improvement in management efficiency.
| FIDELITY BANK PLC | |||
| HALF-YEAR AUDITED REPORT 2020 | |||
| COY | 2019 | 2020 | |
| (N) | (N) | % Chg | |
| Date Released | August 30, 2019 | September 3, 2020 | |
| Price as@ Released Date | 1.66 | 1.81 | 9.04 |
| Gross Earnings | 103,655,000,000 | 105,755,000,000 | 2.03 |
| Profit After Tax | 8,497,000,000 | 11,303,000,000 | 33.01 |
| Shareholders’ Fund | 215,566,,000,000 | 250,689,000,000 | 16.29 |
| ESTIMATED RATIOS | |||
| Earnings Per Share | 0.29 | 0.39 | 33.01 |
| PE Ratio (x) | 1.41 | 1.16 | -18.02 |
| Earnings Yield (%) | 17.67 | 21.55 | 21.99 |
| Book Value | 7.44 | 8.65 | 16.29 |
| Price To Book | 0.22 | 0.21 | -6.24 |
| ROE (%) | 3.94 | 4.51 | 14.37 |
| Profit Margin (%) | 8.20 | 10.69 | 30.35 |
| ROA (%) | 0.44 | 0.47 | 7.38 |
| LDR (%) | 105.49 | 100.55 | -4.68 |
| Opex To Gross Earnings | 34.53 | 41.43 | 19.97 |
| Year End | Dec | Dec | |
Source: NSE, Company Report and Investdata Research
Source: NSE, Company Report and Investdata Research
Fidelity Bank Plc began operations in 1988 as Fidelity Union Merchant Bank Limited. By 1990, it had distinguished itself as the fastest growing merchant bank in the country. However, in 1999, it converted to commercial banking and changed its name to Fidelity Bank Plc, and thereafter adopted universal bank in February 2001, with a license to offer the entire spectrum of commercial, consumer, corporate and investment banking services.
| FIDELITY | |
| Share Holding Structure | |
| Fidelity Bank has no majority shareholder | Except Stanbic IBTC with 6.6 % |
| Other Statistics | |
| Shares Outstanding (MN) | 28,974,797,023 |
| Opening Price (2019) | 2.03 |
| Closing Price (2019) | 2.05 |
| Closing Price as at April 3, 2020 | 1.69 |
| Date Listed | 17th May, 2005 |
| Year End | 31st December |
Management
The management impact on its improving performance and numbers as revealed by the half-year result showing the commitment and confidence of its management to create value for investors. We note that the members of the executive management are also part-owners of the bank, following which members of the board hold no less than 40 million shares each, resulting in almost 450 million shares among them. This is expected to drive more improvement going forward thereby fostering growth and stability of the bank’s earnings. Also, the performance in recent years is a pointer to where the bank is headed.
Four years Performance Analysis
Half-year gross earnings over a four-year period grew consistently at an average of over 41.77% between 2016 and 2019, from N152.01 billion in 2016 to N215.51 billion in 2019. Recall that 2016 and 2017 were years when the economy slipped in and out of a recession and banks were negatively impacted, as seen in the increased level of Non-Performing Loans as a ratio of total loans, resulting in a slowdown in full-year dividend payout between 2017 and 2018. There was a rebound in 2019 when Fidelity Bank paid 20 kobo per share, representing an 81.81% growth and 11.96% yield.
Nevertheless, the noticeable improvement in the bank’s operations between 2018 and 2019 financial years was attributed to internal restructuring aimed at driving deposit and customer satisfaction.
In the four-year period also, profit level since 2016 has remained strong, supporting the banks share price, despite fluctuations as a result of market dynamic and fundamentals. Fidelity Bank’s earnings power has also maintained an upward movement over the past four years due to a strong commitment to deliver value at all levels.
Profit first soared from N9.73 billion in 2016 to N18.86 billion in 2017, representing a growth in excess of 100%; after which it rose in 2018 and 2019 to N22.93 billion and N28.43 billion respectively. Shareholders’ funds maintained an uptrend of 26.23% from N185.40 billion in 2016 to N234.03 billion in 2019.
| FIDELITY BANK’S FOUR-YEAR FINANCIAL PERFORMANCE | ||||
| 2016 | 2017 | 2018 | 2019 | |
| Date Released | April 07, 2017 | April 30 2018 | March 29, 2019 | March 23, 2020 |
| Price @ Released Date | 0.84 | 2.58 | 2.06 | 1.69 |
| Gross Earnings | 152,012000,000 | 179,846000,000 | 188,879000,000 | 215,514,000,000 |
| Profit After Tax | 9,734,,000,000 | 18,857,000,000 | 22,926,000,000 | 28,425,000,000 |
| Shareholders’ Fund | 185,402,000,000 | 203,315,000,000 | 194,416,000,000 | 234,030,000,000 |
| Dividend | 0.14 | 0.11 | 0.11 | 0.20 |
Estimated Performance Ratios
Earnings per share for the period reflected the company’s earnings power, jumping from 34 kobo in 2016 to 98 kobo estimated from the 2019 financials. The said EPS is same as 1.72 (times) of the market price at released date, yielding 58.05% of market price from a price to earnings ratio of 2.5x in 2016. The book value looks attractive at N8.08, even as we note that the growth in the book value through the observed periods boosted confidence and assurance of further improvement despite the fluctuation in price and market trend. The growth in EPS is attributed to the increased net fees and commission income which, in our view, is the mainstay of the bank’s non-interest income. Key drivers of the improvement in net fees and commission were stronger credit fees and improved ATM and account maintenance charges. We note that this growth in non-interest income was stifled by weaker net FX gains.
| FIDELITY BANK- ESTIMATED RATIOS | ||||
| 2016 | 2017 | 2018 | 2019 | |
| Earnings Per Share | 0.34 | 0.65 | 0.79 | 0.98 |
| PE Ratio | 2.50 | 3.96 | 2.60 | 1.72 |
| Earnings Yield | 39.99 | 25.23 | 38.41 | 58.05 |
| Book Value ( | 6.40 | 7.02 | 6.71 | 8.08 |
| Price To Book ( | 0.13 | 0.37 | 0.31 | 0.21 |
| ROE | 5.25 | 9.27 | 11.79 | 12.15 |
| Profit Margin | 6.40 | 10.48 | 12.14 | 13.19 |
| Year End | Dec | Dec | Dec | Dec |
Valuation
The 2020 half-year book value per share stood at N8.65, while Price to book value (PBV) is 0.21. On the strength of its Price-Earnings-Ratio of 1.16x, which is relatively low in its sector, the shares of Fidelity Bank are fairly and technically priced at N4. 42. We expect future earnings of to improve on the heels of its corporate banking and increased focus on the retail end of the market.
Fidelity Bank price action has been trendy for the last two years, creating buy-low and sell-high opportunities, and is currently side trending on a strong support price level of N1.75 per share. Investors are therefore advised to play within the value area range.
In other words, positions can be taken at this appropriate price support level, just as we reiterate that Fidelity Bank is good for all investment goals, whether short or long.
Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
