**Company**: *FCMB Holdings*

**Rating**: *Buy*

**Current Market Price**: *N1.70*

**Year High**: *N3.65*

**Year Low**: *N1.32*

**Fair Value**:* N4.75*

*By*: **Jeariogbe Tunde Segun (Equity Analyst)**

**Key Financial Ratios**

• In this report we have observed the nine months financial statistics of FCMB Holdings Plc, for the period ended September 30, 2018 and compared same with the corresponding quarter of 2017 to ascertain growth, strength and performances, which have helped to predict possibilities in the full year earnings.

• Comparing the released statistics with that of the corresponding quarter of 2017, it was established that profit reported for the period soared on the strength of dividend income from unquoted equity investments.

• According to the report, dividend income from unquoted equity investments represent dividend received from unquoted equity instruments held for strategic purposes and for which the group has elected to present the fair value gain and loss in other comprehensive income.

• Observing the released statistics further, it was observed that Gross Earnings recorded an appreciable growth, while Interest Income stemmed below comparable period.

**Company Figures**

• Gross earnings for the period improved by 11.83% above what was reported in 2017 Q3. A total of N132.87 billion was reported for the nine months as against N118.81 billion.

• Interest Income stood at 0.89% below 2017 figure. Current Interest Income is N95.41 billion lower than the N96.27 billion posted in 2017 nine months result.

• Meanwhile, Interest Expenses dropped by 16.58%, having moved from the previous N46.37 billion to N38.68 billion.

• Profit before Tax currently reported is N14.76 billion, this is 115.85% above the N6.84 billion of 2017.

• The current profit as reported for the period soared against that of 2017 nine months. The current profit for the year is N11.34 billion as against N5.46 billion in similar period of 2017. This is 107.38% difference.

• Total comprehensive income improved by 199.09% to N18.51billion as against N6.18 billion in previous third quarter

• Total Assets was currently estimated at N1.295 trillion, same as 13.81% above the N1.137 trillion estimate of the previous quarter

• Total Liabilities is currently estimated at N1.116 trillion, that is 16.89% above the N954.79 billion reported in corresponding quarter of 2017

• Total Deposit through the nine months currently reported is estimated at N784.59 billion, this is 19.15% above the N658.47 billion achieved in the first nine months of 2017

• Meanwhile, Loans and Advances dropped below that of the comparable period in 2017 by 8.18%. According to the report, a total of N601.85 billion was given out as loans and advances through the period, which is below the N655.46 billion of 2017

• Net Assets equally dropped by 2.26% when compared to the reported figure in similar period of 2017.

• Kindly see the table below for details.

**Volatility Ratios**

• Confirming investors’ sentiments on FCMB Holdings shares due to the nine-month financials, estimated Beta value stood well above unity and industrial average. See the below table for details

• We estimated Debt to Equity ratio for FCMB Holdings at 86.29%, which is well below the industry average of 336.99%. (Kindly note that industry peers are holdings companies just like FCMB Holdings).

**Profitability Ratios**

• Interest Expense to Gross Earnings is presently estimated at 29.12%, 25.40% below the 39.03% estimated in 2017 nine months financials.

• PBT margin stood at 11.11% as against 5.76% last year, this is 93.01% above 2017 estimate

• Similarly, Profit margin galloped against last year estimates. We have estimated 8.54% margin from Gross Earnings as against the previous estimate of 4.60%

• Return on Average Equity is now 6.34%, compared to the 2.99% returns achieved in the first nine months of 2017.

• Return on Average Assets sprinted higher against comparable period by 82.21%, moving from 0.48% to 0.88%.

**Efficiency Ratio**

• Gross Earnings to Total Assets is estimated at 10.26%, representing 1.74% below the estimate in 2017.

• Similarly, Gross Earnings to Equity is now 74.26%, as against the 64.90% estimated from 2017 nine months financial statistics.

• Financial Leverage is 7.24x as against 6.22x, this is an estimate of the number of times the total assets replicates the equity.

• It was also established that 76.71% of Total Deposit was given out as Loan and Advances during the period under estimate, about 22.94% lower than the 99.54% given out during the first nine months of 2017.

• Meanwhile, Loan and Advances is same as 46.47% of the Total Assets, which is 19.32% lower than the 57.60% estimated for the corresponding quarter of 2017. This shows a controlled/reduced risk compared to 2017.

**Investment Ratios**

• Just as in the company report above, since shares outstanding remained constant during the two periods under consideration, the estimated amount earned per unit of FCMB-Holdings is N0.57. This is 107.38% above the N0.28 earned in 2017Q3.

• The Total Comprehensive Income per share for the period is N0.93 far above the N0.31posted in 2017 nine months financials, this is 199.09% difference.

• The said earnings per share yielded 43.39% of the current market price on the day the result was made available to the investing public.

• PE/Ratio for the period is 0.57x as against 1.35x estimated last year.

• As we speak the Book Value of FCMBH is N9.04, less than the N9.25 estimated in previous year. This is due to the lower value experienced in its Nets Assets for the period as against the previous year.

• OpEx Margin recorded mild improvement of 3.89% having moved to 39.69% from 38.20%.

**Valuation**

After carefully utilizing our blend of valuation models, we have conservatively valued each units of FCMB Plc at N4.75, considering the current market price of N1.70 (as at the time this report was concluded). Consequently, we Rate shares of FCMB Holdings a ‘Buy.’

Please note carefully that we do not expect very strong improvements in its full year financials, nevertheless, we foresee better returns from the Holdco if, and only if, the management close up on few key ratios, by working hard to improve stake in its various sectors of play. Note that a boost in the financials for the period is not likely to replay in subsequent results. On the strength of the above, our Rating will fit best for long term investment positions.