COY: Fidelity Bank
Rating: Hold
Current Market Price: N3.04
Fair Value: N5.00
Key Financial Tickers
• Our analysis is based on Fidelity bank’s latest financial report which is the nine months statistics
• The report shows an outstanding growth against corresponding period of 2016 and more than 50% growth above the half year result
• We have rated earnings quality of Fidelity bank high, as reasonable level of consistency was noticed in the released date.
• Based on record, the next financial report (4th quarter) should hit the market between the last week of March and first week of April.
Corporate Summary
Incorporated in 1987, Fidelity Bank evolved over the years from a merchant bank (through organic and inorganic initiatives) to become a fully-fledged commercial bank with an international focus. (Albeit, currently operating nationally). The bank provides a complete range of financial services, including investments, commercial and retail banking. It ranks amongst the top 10 banks in Nigeria.
Company’s Figures
• Against comparable period of 2016, Gross Earnings grew by 17.89% from N215.59 billion to N225.85 billion
• Profit before Tax (PBT) stood at 65.08% over similar period of 2016, standing at N16.236 billion as against the N9,835 billion in 2016
• Similarly, Profit for the period soared by 65.09% over the N8.753 billion reported in 2016 nine months financial performance
• Total deposit declined slightly by 2.67% against previous nine months’ financials. The figure dropped from N795.59 billion in Q3-2016 to N774.38 billion.
• In conclusion, indices in the income statement show an outstanding improvement over the corresponding period of 2016.
FX Exposure
Fidelity Bank is exposed to foreign exchange risks via its foreign currency denominated borrowings, deposits and advances. While the bank continues to review its exposure, taking a proactive approach towards the management of its related assets and liabilities, we envisage that the current intervention by the Central Bank of Nigeria (CBN) will go a long way to reduce its exposure to the risk. Nevertheless, it is necessary to state the significant reduction in its international borrowings from N76.901 billion in Q3-2017 to N32.672 billion-Q3-2017 as published in its nine months financial performance report.
As can be seen from the table below, the bank’s total debt to equity at 64.27% is fairly above the industry average of 54.48%. Substantially, the equity is enjoying appreciable investor’s patronage, confirming the high level of confidence reposed on its management.
Profitability Ratios
Averagely, Interest Expense to Gross Earnings ratio is within acceptable level at 43.48%, which is fairly above estimates from few other operators in the sector. Similarly, both Profit before Tax and Profit after Tax margin to Gross Earnings ranged within its pair estimates, safe Access Bank that have slightly higher margins.
Efficiency Ratios
The bank’s Asset quality remained relatively stable at the current Non Performing Loan of about 5.90%, which ranks it 6th in the sector. We are of the opinion that the management should be commended for such performance. Nevertheless, we recommend that exposure to both oil and government loans should be seriously curtailed. Shall we reiterate therefore that in line with the recently released regulations of the central bank of Nigeria on qualification of financial institutions to pay dividend; all things being equal, shareholders of Fidelity bank should expect cash dividend for the full year 2017 business activities.
Investment Ratios/Dividend
At its nine-month Earnings Per Share of 50k, we have projected between 70k to 80k full year EPS for Fidelity Bank. Should our estimate be achieved, going by the average payout ratio of 30% common with the financial institution, between 21k and 24k dividend payout should be expected. In other words, estimating with N2.99 current market price, we expect a best case scenario of 8% Dividend Yield and 26.75% Earnings Yield, despite the rapid revaluation of its current market price on the floor of the exchange during the January-February boom.
QoQ Comparison
Outstandingly, the management of Fidelity Bank successfully grew its income statement elements through the reported quarters of 2017. Putting the figures side by side, it was discovered that exceptional growth was recorded between first and the second quarter of the year. On a reduced momentum, the growth continued to the third quarter. We expect the extension of the positive performance into the last quarter of the year and have conservatively projected few income statement items in this regard.
Technical View
Currently, we have established two major supports for the daily share price movement of Fidelity bank; the first is around N2.43 while the second lies around N2.22. Meanwhile it currently trade near a previous support turned resistance point at N3.12. Should this major resistance be broken, then, it should be assumed that the stock may have exited downtrend and may have commenced a new journey towards the north. Queuing behind know fundamentals, we foresee more investors positioning for positive expectations in the next two weeks from now. We also expect some level of shock at release of the expected result as most investors may opt for capital gains rather than waiting for cash incentive.
By JEARIOGBE TUNDE SEGUN
Equity Analyst
