Company: FBN Holdings Plc
Rating: Buy
Current Market Price: N13.40
Fair Value: N22.00
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Financial Tickers
• This report focuses on the full-year financial data for the year ended 31st December, 2017
• Generally, the result is outstanding, especially when compared with what it posted in the 2016 financial year
• A final cash dividend of 25k has been announced for the 2017 financial year
• The qualification date for the said cash dividend is May 4, 2018, while the registrar of shareholders will be closed on May 7, 2018
• The Annual General Meeting (AGM) will hold at Zinna Hall, Eko Hotel & Suits, Adetokunbo Ademola Street, Victoria Island, Lagos on Tuesday, May 15, 2018
• Thus, if the proposed cash dividend is approved by the shareholders at the AGM, same will be electronically distributed on May 16, 2018.

Strength
• The financial institution enjoys the multiple streams of income through its Holdco structure, which further remains a strong income point for the group
• Under its commercial banking arm, it has branches in seven African countries and the United Kingdom
• Its merchant banking subsidiary operates in two sub-sectors: Assets Management and Capital Market Operations. The two are effectively anchored by FBNQuest Assets Management Ltd and FBNQuest Securities Ltd
• Under its Capital Banking, it operates through FBNQuest Trustees Ltd and FBNQuest Funds Ltd
• It also operates in the Insurance sector through; FBN Insurance Ltd, FBN General Insurance Ltd and FBN Insurance Brokers Ltd
• As mentioned above, we see this option as a financially balanced opportunity, although things may go wrong at times, especially when one of the arms suffered a major loss. The holdco structure has increased the group’s opportunities for positive performance.
Corporate Figures
• The financial indices released by FBN Holdings for the full year ended December 31, 2017 is indeed very impressive
• As can be seen from the table below, both the income statement and the balance sheet stood tall against the 2016 performance indices.
• Gross Earnings improved marginally by 2.53% from N583.01 billion in 2016 to N597.75 billion this year
• Impairment charges for credit losses on the other hand reduced by 33.45% to N150.42 billion from N226.03 billion last year. This has lengthened the pressure on the group’s income for the year
• Profit before Tax soar over the previous year by 147.63%, moving from N22.94 billion to N56.82 billion
• Net Profit for the period equally grew outstandingly over 2016 level by 226.81%. The profit for the year stood tall at N40.01 billion as against N12.24 billion in 2017
• Further impacted by net gains on available for sale financial assets and exchange difference on translation of foreign operations, Total Comprehensive Income (TCI) for the year was N104.16 billion as against last financial year’s N9.14 billion. This is indeed an outstanding performance
• Confirming the Asset composition, it was noticed that:
 Total Assets improved by 10.55% to N5.235 trillion as against N4.736 trillion YoY
 This could be linked to the mild inflow of deposit between the financial years under comparison. Note that total deposit improved by 8.19% over 2016 deposits.
• Loan and advances was fairly controlled, as the value of this financial index only appreciated by 8.52% over last year’s. Please observe that the growth is close to Total Deposit growth of 8.19%.

Liquidity/Risk Ratios
• Theoretically, the share price of FBNH is more volatile than the market at 1.57x beta value. In our opinion, this could be linked to the high shares outstanding of the holding company. Normally, the high liquidity will mean the shares are widely spread among the investing public, with no single investor holding up to 5% stake
• Unlike the previous year, Debt to Equity ratio of FBNH has reduced and now fair enough at 63.17%. Kindly note that this is grossly behind the industry average and could use for better rating for the company.

Profitability Ratios
• As a result of the improved financial performance, the Interest Expense to Gross Earnings Ratio increased by 33.54% from the 17.30% of the previous year to 23.10%
• On the other hand, both the Profit before and after Tax (PBT & PAT) margin grew outstandingly as a result of:
 Reduced impairment charges for credit losses
 Higher profit from the insurance arm of the Holding Company
 Improved income from financial instruments
 And reduced percentage of operating expenses amongst others
• Please see below for improved returns on both Average Equity and Assets

Efficiency Ratios
• Generally, all efficiency ratios of FBNH dropped against 2016 financial statistics, in our opinion, this is an indication that the bank could perform even better, despite the improved position posted
• As a result of over 10% increase in the Total Assets, Gross Earnings to Total Assets ratio achieved in the previous year could not be surpassed. The ratio stood below comparable year by 7.26%, from 12.31% to the current 11.42%
• Similarly, Gross Earnings to Equity dropped by 11.93% from 100.08% to 88.14%
• Financial Leverage (FL), a ratio that confirms the bank’s strength to service its interest paying liabilities equally dropped from 8.13x to 7.72x. Please understand that, though the ratio dropped, the said FL is still a very strong position
• Nevertheless, reflective of the conservative stand of most financial institutions to guide against the effect of Non-Performing Loan (NPL), the Loan to Deposit ratio of FBNH only increased marginally, while Loan to Total Assets dropped mildly.

Investment Ratios
• Just as in the profit line, the amount earned per unit share of FBNH appreciated by 226.81% from N0.34 to N1.11
• Total Comprehensive Income leveraged on unrealized incomes and difference in translational rate, as it soar by 1,039%, from the N0.25 to N2.90 TCI/share
• Despite the price appreciation experienced during the year, the earnings for the year yielded 8.32% of the current market price as against the 9.75% yield when the price was N3.50
• Measured by the P/E Ratio, investor preference on the other hand, improved by 17.15% from 12.02x to 10.26x
• Price to Book Value revealed an underpriced stock at 0.71x though above the 0.22x of last year. This stand is further confirmed by the difference between the estimated Book Value of N18.89 and the current market price of N13.40 (as at the time this result was released.

Valuation
• Trying to place a fair value on the share price of FBNH, we have considered the following:
 The improved state of the Holdco financials
 The improved state of its NPL
 The current estimated Book Value
 The 25k cash dividend announced and
 The marginal growth between the current dividend and the 20k paid in the last financial year.
• Exploring our blend of valuation models, which fits in the above conditions, we placed each unit of FBNH share price at N22.00 and a buy recommendation.