FBN Holding: Impressive H1 Earnings On High NIM, Repricing Of Financial Instruments

FBN Holdings (FBNH) Plc last week released its unaudited financial statements for the six months ended 30 June 2023. By this act, it became the first quoted Deposit Money Bank (DMB) to make available its Half-Year results for 2023, ahead of the 30-day deadline which lapses July 31.
A close analysis of the results showed that both Gross Income (GI) and Net Income (NI or PAT) expanded by 108.9% and 231.1% to settle at ₦754.80 billion and ₦187.18 billion respectively, compared to the numbers achieved in 6M-2022.

Net gains on Financial Instruments key to GI growth
The growth in GI was essentially driven by gains recorded from Financial (investment) Instruments revalued at Foreign Exchange (FX) closing value on the 30th of June, which jumped by 1,938.4% year-on-year (y/y) to settle at ₦229.74bn and represented 30.4% of the GI. The big contributor to the GI remains Interest Income (50.8% of the GI) which grew by 69.3% y/y, following substantial growth in loans and advances to customers (38.9% y/y). Fees and Commission Income (FCI), the other contributor to the GI, grew by 26.8% y/y, as the drive to reduce over-the-counter transactions and rev up CBN’s cashless economic policy accelerated. However, Interest expense increased by 98.7% y/y, driven by 109.7% rise in interest expenses paid to customers on deposit, as the group grew term deposits (+65.6% y/y) more than Current (+13.0%) and Savings (+9.5%) accounts’ (CASA) deposits.

Expenses remains sticky amid challenging operating environments
Operating expenses (OPEX) expanded by 24.5% y/y to sit at ₦231.56bn, mostly on regulatory charges and maintenance costs. The Group recorded FX loss well over 494% y/y, which could be attributed to the significant volatility in the marketplace and the unification done by the CBN on the 14th of June. However, following the larger growth in GI (+108.9% y/y) than OPEX expansion, operating efficiency improved, with the Cost-to-Income ratio falling to 39.0% vs 68.0% in 6M-22. As such, Pre-tax operating profits grew by 212.8% y/y. Still on the P&L, Loan loss provisions rose by 165.4% y/y, amid increased in structural challenges in the economy.

Bottom-line grows by over 200% y/y
In line with improved growth in the income heads, the Group’s Pre-tax profit rose by 213.1% y/y to settle at N206.26bn. Although, total tax expenses rose to ₦19.02bn, representing 108.6% upside of 6M-2022 number, post-tax profit (PAT/Net Income)) expanded by 231.1% to settle at ₦187.18bn. Based on outstanding shares of 35.9 billion, our computed 3M-22 earnings per share (EPS) stands at 521kobo, 363kobo higher than 158kobo achieved in 6M-2022, leading to a Price/Earnings Ratio (PE) of 3.46x against the closing market price of ₦18.05 as at the close of business on Thursday, 20 July 2023.

Total asset continues the upward trend
The Group’s total assets grew by 34.0% to settle at ₦14.18 trillion compared to the number reported in FY-2022. Growth here was chiefly supported by 38.9% y/y increase in Loans and Advances extended to Customers. Total liabilities also rose by 33.6% to settle at ₦12.80 trillion. This increase was substantially bolstered by 26.9% y/y rise in Customers’ deposits. With the faster increased in total assets compared to total liabilities, Shareholders’ fund rose firmly by 38.4% to settle at ₦1.538 trillion in the period.

Investment case for FBNH
The Group’s first half (H1 ’23) performance is encouraging, bolstered by substantial growth in credit creation, trading income, and fees-based revenue. If the pace of this performance is sustained, we may likely see a significant improvement in the financial year ending 31 December 2023 results compared to FYE 2022. Kindly see the table below for detailed highlights.

Technically, looking at the chart or price action below, the stock had formed a double bottom that support uptrend as the company share price heading to breakout 11 years on strong earnings report and improving volume chart pattern that should guide your position taking and how long you should stay.