Company Analysis

# Fidelity Bank: Bigger Loan Book, Better Margins, Raise Hope For Fatter Payout

Rating: Hold

Current Market Price: N2.29

Year High: N2.79

Year Low: N2.08

Fair Value: N4.18

Equity Analyst: Tunde Segun Jeariogbe

**Introduction**

- This report observes the performance statistics of Fidelity Bank Plc for the first quarter of 2021, compared same with that of the similar quarter of 2020, and established a growth pattern accordingly.
- We also observed few valuation metrics and achieved conservative projections using the full-year performance indices for the year ended 31st December 2020 with growth estimated through the use of few other performance indices.
- Generally, the result can be rated impressive when put side-by-side figures released in the similar quarter of 2020.
- We have estimated Non-performing loan at 2.89%, down from last year’s 4.20%.
- See below for other financial indices.

**Company figures**

- Gross Earnings reported for the period stood at N55.12 billion, up from the N51.15 billion posted at the end of the 2020Q1.
- Interest Income stood at N43.06 billion, as against N43.92 billion in 2020 first quarter.
- Interest Expenses was estimated at N14.26 billion, the same as 26.19% below the reported N19.32 billion in 2020.
- Net Interest Income stood at N28.79 billion from N24.60 billion achieved at the end of 2020 first quarter.
- Operating Expenses grew by 5.26% above the comparable period, as it is currently valued at N21.27 billion against N20.21 billion.
- Profit before Tax stood at N10.13 billion, same as 53.94% above the N6.58 billion posted in the corresponding period.
- Having considered the Tax Expense for the period, a total of N9.59 billion was reported as Profit for the period, which is 63.68% above the N5.85 billion earned at the end of the first three months in 2020.
- Note that the Total Comprehensive Income for the period is negative, to the tune of N9.10 billion, as against N7.26 billion in the comparable period.

- Total Assets is currently valued at N2.893 trillion, same as 28.77% above the corresponding period valuation of N2.246 trillion.
- Similarly, due to improved deposit, Total Liabilities for the period was N2.628 trillion, from N2.004 trillion in 2020 first quarter business session.
- Net Assets is estimated at N264.42 billion, which is 9.09% above the N242.38 billion estimated last year.
- Retained Earnings remained positive at N76.29 billion, as against N50.22 billion last year.
- Total Deposit at the end of the period is same as N1.75 trillion, higher than the N1.35 trillion deposit reported in the corresponding quarter of 2020.
- Total Loans and Advances stood at N1.74 trillion, as against N1.31 trillion in 2020.

**Financial Strength/Solvency Ratios**

- Debt Ratio which compares Total Assets to Total Liabilities stood at 90.86%, implying that Total Liabilities is 90.86% of Total Assets. Note that Total Liabilities includes Total Deposits for the period.
- Total Debt to Equity for the quarter stood at 10.8x, same as 108.5% above the 8.27x estimated in 2020, implying that the company used Debt equivalent to 10.85 replicate of its equity through the period.
- Equity Ratio which compares Equity to Total Assets stood at 8.38%, as against 10.79% in the corresponding quarter; implying that the reported Equity at the end of the period is 8.38% of Total Assets.
- The estimated Beta value for Fidelity Bank as at the time this report was compiled stood at 1.15, higher than the industry average of 1.11.

**Profitability Ratios**

- Pre-Tax Margin grew by 42.87% to 18.38%, up from the 12.87% estimated at the end of first three months of 2020.
- Interest Expenses to Gross Earnings declined by 31.49% to 25.88%, as against the previously estimated 37.78% in the corresponding period.
- Return on Average Equity through the first three months of 2021 was 3.96% against 2.42% estimated from 2020 three months numbers.
- See below for detailed profitability ratios and comparisons

**Efficiency Ratios**

- Operating Expenses at the end of the period is 38.60% of the estimated Gross Earnings, slightly below the 39.51% achieved in 2020 three months financials. Please note that this implies marginal adjustment in expenses rate.
- Gross Earnings estimated from the financials is same as 1.91% of the Total Assets value posted for the period under analysis.
- Total Loan and Advances during the quarter is 99.43% of Total Deposit, representing a 2.03% upward adjustment over the 97.45% estimate in 2020. We note also that this is far above the 65% regulatory threshold for Nigerian banks.

**Investment/Valuation Ratios**

- Profit earned per unit of Fidelity Bank is estimated at N0.33, a 63.68% improvement over the N0.20 earned in similar quarter of 2020, and an indication that the Mustafa Chike-Obi-led board could offer a juicier dividend at the end of current year, if the management is able to sustain this momentum.
- Adjusted P/E-Ratio for the three-month dropped to 1.68x from 2.25x, translating into less waiting period by investors.
- The said earnings per share yielded 14.84% of the price of each units of Fidelity Bank’s shares on the exchange on the day the result was released to investors through the exchange.
- Estimated value of each unit of Fidelity Bank is N8.37, same as previous quarter’s estimate.
- Confirming the academic under-priced position of Fidelity Bank’s shares on the exchange is the Price to Book Value estimate that stood far below unity.

**Valuation**

Exploring our blend of valuation tools, we conservatively valued each unit of Fidelity Bank shares at **N4.18**, thus, we rated it a **Hold.**