Rating: Buy
Current Market Price: N2.56
Year High: N2.80
Year Low: N2.08
Fair Value: N4.36
Equity Analyst:  Tunde Segun Jeariogbe

Introduction

• This report observes the financial performance statistics of Fidelity Bank Plc for the first nine months of 2021, compared same with the similar period in 2020, and establish growth accordingly.
• We also observed a few valuation metrics and achieved conservative projections using the full-year performance indices from the year ended 31st December 2020.
• Generally, the result can be rated average when placed side-by-side with figures released in the corresponding period of 2020.
• Performance indices stood at the appreciable gap from the comparable periods, though the Total Comprehensive Income dropped substantially against that of the comparable period of 2020.
• See below for a comparison of other financial indices.

Company figures

• Gross Earnings posted for the period stood at N174.35 billion up from the N155.03 billion posted at the end of 2020 nine months.
• Interest Income stood at N137.41 billion, up from N128.25 billion in 2020 preceding nine months.
• Interest Expenses was estimated at N72.45 billion, the same as 26.07% above the reported N57.46 billion in 2020.
• Net Interest Income was estimated at N64.95 billion, down from N70.78 billion in the corresponding period.
• Operating Expenses dropped by 6.98% to N55.03 billion from N59.21 billion in the comparable period of last year.
• Profit before Tax stood at N28.05 billion, same as 31.40% above the N21.34 billion posted last year.
• Having considered the Tax Expense for the period, a total of N26.51 billion was reported as Profit for the period, this is 29.92% above the N20.40 billion earned at the end of the first nine months in 2020.

• Total Assets is currently valued at N3.182 trillion, the same as 23.59% above that of the N2.575 trillion in the full-year ended December 31, 2020.
• Similarly, due to improved deposit, the Total Liabilities posted for the period was N2.900 trillion against N2.313 trillion in 2020 full-year.
• Net Assets is therefore estimated at N282.65 billion, which is 7.81% above the N262.17 billion estimated in the last full year.
• Retained Earnings remained positive at N53.70 billion, against N58.96 billion of last full-year.
• Total Deposit at the end of the period is the same as N1.972 trillion, higher than the N1.498 trillion deposit reported in 2020 audited full-year.
• Total Loans and Advances stood at N1.766 trillion from N1.455 trillion in 2020 full-year.

Financial Strength/Solvency Ratios

• Debt Ratio which compared Total Assets to Total Liabilities stood at 91.92%, implying that the Total Liabilities is 91.92% of Total Assets. Note that Total Liabilities is inclusive of Total Deposits for the period.
• Total Debt to Equity for the period stood at 10.26x, same as 16.30% above the 8.82x estimated in 2020, which implies that the company used Debt equivalent to 10.26 replicate of its equity through the period.
• Equity Ratio which compares Equity to Total Assets stood at 8.88%, as against 10.18% in the corresponding quarter; implying that the reported Equity at the end of the period is 8.88% of Total Assets.
• Estimated Beta value for Fidelity Bank as of the time this report was compiled stood at 1.01x, slightly above the market beta but lower than the 1.11 industry average.

Profitability Ratios

• Pre-Tax Margin inched north by 16.84% to 16.09%, against the 13.77% estimated at the end of 2020 nine months.
• Interest Expenses to Gross Earnings grew by 12.10% as it is now estimated at 41.56%, against the previously estimated 37.07% in the corresponding period of last year.
• Return on Average Equity through the first nine months of 2021 was 9.38% against 7.78% estimated from 2020 nine months numbers.
• See the below table for detailed profitability ratios and comparison.

Efficiency Ratios

• Operating Expenses at the end of the period is estimated at 31.59% of the estimated Gross Earnings, which is below the 38.20% achieved in the 2020 nine-month financials.
• Gross Earnings estimated from the bank’s financials is the same as 5.48% of the Total Assets value posted for the period under analysis.
• Total Loan and Advances posted for the quarter is 89.54% of Total Deposit, this is 7.84% downward adjustment over the 97.16% estimate in 2020. Note that this is far above the regulators’ standard for Nigerian banks.

Investment/Valuation Ratios

• The profit earned per unit of Fidelity Bank is estimated at N0.92, 29.92% above the N0.70 earned in a similar period of 2020.
• Total Comprehensive Income per share is estimated at N0.53, which is 54.36% below the N1.17 TCI/share achieved in 2020.
• Adjusted P/E Ratio for the nine months dropped to 1.00x from 1.08x, which can also be interpreted as a reduced investment period.
• The said earnings per share yielded 33.39% of the price of each unit of Fidelity Bank’s on the exchange on the day the result was released to investors through the exchange.
• The estimated value of each unit of Fidelity Bank in its book is N9.76, representing a 7.81% improvement over the previous estimate of N9.05 per share.
• Confirming the academic under-priced stand of Fidelity Bank’s shares on the exchange is the Price to Book Value estimated at far below unity.

Valuation

Exploring our blend of valuation tools, we conservatively valued each unit of Fidelity Bank at N4.36, thus, we rate it a Buy.