Rating: Buy
Current Market Price: N7.40
Year High: N7.85
Year Low: N6.25
Fair Value: N10.09
Equity Analyst:  Tunde Segun Jeariogbe

• This report observes the financial performance indices of FBN Holdings for the period ended 30th June 2021; compare same with released statistics for the similar period in 2020 to establish the growth pattern.
• Putting past full-year numbers together, we have achieved reliable projections using rates estimated through the growth in earnings. We have linked our valuation to the economy by making use of the 91-Days Treasury Bill Rates, and have carefully linked the same to the market by estimating the FBNH beta value.
• We are therefore of the opinion that our estimated intrinsic value is conservative enough, at least till another full-year report is released by the company.
• At the end of the period, the bank’s deposit dipped by a marginal 2% while loans and Advances improved by over 20%. Nevertheless, the bank Loan to Deposit Ratio was above 60%.
• Although the total profit reported for the period stood over the comparable period of 2020, the total comprehensive income dropped largely against the comparable period.
• A scan through the result revealed that the large drop in the total comprehensive income was largely due to the unrealised losses incurred through Fx translational difference in international businesses done within the period.
• See below for a detailed analysis

Company figures

• Gross earnings reported for the period dropped against the comparable period by 6.03% from the previous estimate of N262.92 billion to N247.07 billion.
• Interest income stood at N161.01 billion, against the N207.41 billion reported in the similar period of 2020.
• Similarly, Interest Expenses dropped by 24.88% to N57.19 billion, as against the N76.14 billion reported in the corresponding first half of last year.
• Thus, Net Interest Income stood at N103.82 billion, 20.91% below the N131.27 billion achieved in the previous half-year.
• Operating Expenses grew by a marginal 9.18% over that reported in 2020. Note that this index is currently estimated at N139.24 billion, compared to N127.53 billion in the corresponding period.
• Profit before Tax for the period is estimated at N45.23 billion, a mere 9.23% above the N41.41 billion achieved in the similar period of 2020.
• Having considered Tax expense for the period, profit reported for the period stood at N38.08 billion, inching by 6.86% over the N35.64 billion earned through the first six months of 2020.
• As noted above, the Total Comprehensive Income for the period dipped by 66.49% against the comparable period. It is currently valued at N23.06 billion versus N68.84 billion in the comparable quarter.

• Total Assets valuation improved by a marginal 12.53%, against that of the comparable period currently valued at N8.02 trillion, compared to the N7.13 trillion assets valuation released at the end of 2020 half-year.
• In a similar trend, Total Liabilities grew by 12.84% to N7.25 trillion against N6.42 trillion reported in the 2020 half-year.
• Net Assets grew to N772.08 billion, against N704.09 billion in 2020, a difference of 9.66%.
• On the other hand, retained earnings increased to N155.244 billion to 41.60%, above the N109.63 billion reported in the similar period of 2020.
• Total Deposits achieved through the first six months of 2021 dropped by a marginal 2.00% to N5.45 trillion, compared to N5.56 trillion in the 2020 first half.
• Total Loans and Advances moved north by 23.91% to N3.41 trillion as against the N2.75 trillion in the similar period of 2020.

Financial Strength/Solvency Ratios

• Debt Ratio which compared both Total Assets to Total Liabilities stood at 90.38%, implying that Total Liabilities is 90.38% of Total Assets. Note that Total Liabilities is inclusive of Total Deposits for the period.
• Total Debt to Equity for the quarter stood at 9.39x, the same as 2.91% above the 9.13x estimated in 2020. This implies that the company used 9.39 times of its equity through the period (note that debt used is total liabilities and is inclusive of total deposits for the period).
• Equity Ratio which compares Equity to Total Assets stood at 9.62% against 9.87% implying that Equity value at the end of the period is 9.62% of FBNH Total Assets, although this is a reduction from the previously estimated 9.87%.
• The estimated Beta value for FBNH as at the time this report was compiled stood at 1.15x, above market beta and the industrial average for the period.

Profitability Ratios

• Pre-Tax Margin grew by 16.23% to 18.31%, as against the 15.75% estimated at the end of 2020 second quarter.
• Interest Expenses to Gross Earnings adjusted down by 20.07% at 23.15% against the previously estimated 28.96%.
• Return on Average Equity through the first six months of 2021 was 4.93% against 5.06% in the corresponding period.
• See the below table for detailed profitability ratios and comparison.

Efficiency Ratios

• Operating Expenses at the end of the period is estimated at 56.36% of the estimated Gross Earnings, higher than the 48.51% achieved in the corresponding period 2020. Note that this implies an increased rate of expenses against Gross Earnings
• Gross Earnings estimated from the bank’s financials is the same as 3.08% of the Total Assets value posted for the period under analysis.
• Total Loan and Advances posted for the quarter is 62.67% of Total Deposit for the six months, a higher rate when compared to the 49.56% posted at the end of the 2020 half-year.

Investment/Valuation Ratios

• Profit earned per share of FBNH is estimated at N1.06, a slight growth over the N0.99 earned in the similar of 2020.
• Total Comprehensive Income per share is estimated at N0.64, this is 66.49% below the N1.92 TCI/share achieved in 2020.
• Our six-month adjusted P/E-Ratio grew to 1.74x from 1.26x, implying a marginal improvement in investor sentiments for the shares of FBNH.
• The said earnings per share is a yield of 14.34% of the price of each unit of FBNH on the exchange on the day the result was unveiled to investors through the exchange.
• The estimated value of each unit of FBNH shares in its book is N21.51, a 9.66% improvement over the previous estimate of N19.62 per share.
• Confirming the academic under-priced stand of FBNH shares on the exchange is the Price to Book Value estimate at below unity

Valuation

Assuming a constant growth rate of the current dividend of FBNH, the constant perpetual growth rate of the Gordon Growth Model was put to play, and assuming our discount rate at 91-Days Treasury Bills Rate, while making use of the estimated sustainable growth rate; we arrived at N10.09 valuation for each unit of FBNH shares. Thus, we have rated FBNH a BUY.