The innovative and proactive efforts of the board and management of Fidelity Bank Plc in recent years may have transformed it into the fastest growing bank in Nigeria’s banking industry today, especially when seen through the prism of profitability and robust balance sheet.
Consequently, Fidelity Bank has become a leading Tier-2 player, just as it is fast making an inroad into Tier-1, while building capacity outside the country, with the acquisition of Union Bank Plc UK. It is complementing that with an equally ambitious expansion into African countries, taking advantage of the free trade zones across the continental, as an SME and export-focused bank.It is these efforts as part of the commitment to create enhanced value for stakeholders that led it into non-oil exports, agribusiness financing and the launch of the Fidelity international trade & creative connect. Such efforts are expected to deepen customer base and relationship with exporters, which could further expend its trade finance book.
The unaudited scorecard for the period ended December 31, 2023, recently made available to the market to help investors plan their investments. We know that timely rendition of results, whether audited or not, aid prediction and timing of investment, just as the proposed capital raise is expected to solidify and boost its operations for higher profitability.
The bank’s numbers show that the top and bottom-lines rose when compared to the 2022 figures, with Gross Earning improved by 64.31% from N337.05 billion in the audited 2022 report to N553.90 billion (unaudited), while Profit grew an even more significant 116.92% from the N46.72 billion to N101.30 billion. These strong numbers were boosted by the net interest income and strong foreign exchange gains, translating into an Earning Yield of 24.72% in 2023. Loan and advances for the period improved by 47.62% increasing its exposure to Non-Performing Loans.
Net Asset for the period increased by 37.90% to N433.33 billion with the planned Rights Issue that will enable the bank succeed in its proposed recapitalisation that is poised to change the dynamics of Nigeria’s banking industry.
Fidelity Bank’s relatively low Non-Performing Loan ratio of 3.8%, despite the growth in its loan book reflected improvements in asset quality and risk management, despite the increasing economic headwinds during the period.
Also, the robust trading income and higher yields’ environment in the fixed income market are a plus for the bank, even as crude oil price oscillated for the period, even as other factors supported the improved performance of the bank.
Earnings Per Share estimates for the period under review translated to N3.16 each, compared to N1.61 in 2022. While the increase in share price within the period may have somehow lengthened the waiting period for your investment at 4.05x, from 3.26x which is still very much in order. The said Earnings reported during the period yielded 24.72% based on the share price as of the release date which is below the 30.66 percent yield estimated in 2022. Return on Equity increased from 14.86% in 2022 to 23.38% in 2023, with improvement in Profit Margin at 18.29% from 13.86% in the previous year.
Source: NSE, Company Report and Investdata Research
Fidelity Bank Plc began operations in 1988 as Fidelity Union Merchant Bank Limited. However, two years later in 1990 it had distinguished itself as the fastest growing merchant bank in the country, a situation that may have encouraged its conversion to Commercial Banking in 1999. This necessitated the change in its name to Fidelity Bank Plc, before adopting the universal banking model in February 2001. Armed with that license, Fidelity Bank Plc became a one-stop shop for commercial, consumer, corporate and investment banking services.
Management
The capability of Fidelity Bank’s management over the years and especially in recent times is evident in the improved numbers, which is further revealed in the 2023 report, showing the commitment, and confidence in the the team to create value for investors.
All the Executive Directors have direct holding of less than 5%, a situation expected to drive improvement, while fostering growth and stability in earnings. The is high hope that Fidelity Bank’s enhanced infrastructure, state-of-the-art technology and rebranding will enhance profit going forward.
We believe that the bank’s performance in 2022 and 2023 are pointers to where it is heading. This outlook is, however, threatened by the unstable policy environment in its industry of operation as seen in the latest adjustment in Cash Reserves Ratio (CRR) and impact of government’s ongoing economic reforms and in the midst of oscillating oil prices in the international market, made worse by the volatility arising from the technical devaluation of the Naira to major global currencies.
Four-Years Performance Analysis
Fidelity Bank’s gross earnings over a four-year period has grown consistently, recording an average increase of about 56.4 percent between 2019 and 2022 from N215.51 billion in 2019 to N337.05 billion in 2023. Recall that there was the outbreak of the Corona Virus Pandemic which ravaged the globe in year 2020, resulting in low oil price and lockdown that affected national economies, including the banks, despite which dividend payout inched marginally to 22 kobo, from 20 kobo in 2019. Dividend growth for the four-year period soared by 150% as at released date. Nevertheless, the noticeable improvement in operations in the 2021 and 2022 financial years was attributed to the bank’s foray into export financing, which ramped up export trade transaction volumes and foreign exchange receipts, among others.
Profitability level has since 2020 remained on the path of strong growth, which has supported the share price, despite its fluctuations due to market dynamics and fundamentals. The bank’s earnings power has maintained an upward movement over the last four years owing to the strong leadership and commitment to deliver value at all levels and time. Fidelity Bank reported a profit of N28.43 billion in 2019, which expectedly slowed down to N26.65 billion the following year, before taking a leap to N46.72 billion in 2022, representing an increase of over 60%. Its shareholders’ funds maintained an uptrend growth of 34.32% that soared from N234.03 billion in 2019 to N314.36 billion in 2022.
Source: NSE, Company Report and Investdata Research
Estimated Performance Ratios
The bank’s earnings per share for the period is a reflection of its earnings power as it grew from 98 kobo in 2019 to 161 kobo in 2022. This is same as 3.26x (times) of the market price at released date, yielding 30.66 percent of market price from the Price to Earnings Ratio of 1.72x in 2019. The book value looks attractive at N10.85 each, this increase over the observed periods boosted confidence and assurance of further growth despite the fluctuation in price and market trend.
The growth in the bank’s EPS was attributed to increase in trading, fees and commission income which, in our view, is the mainstay of the bank’s non-interest income. Key drivers of the improvement in net fees and commission were stronger credit fees and others like account maintenance charges. We note that the growth in non-interest income was loud by FX gains.
Valuation
The 2023 Book Value Per Share stands at N13.54, while Price to Book Value (PBV) is 0.95, on the strength of its Price-Earnings-Ratio of 4.05x, which is relatively low in its sector. The share price is, therefore, fairly and technically placed at N16 each. The future earnings of the bank expected to improve on the heels of it corporate banking, increasing retail market and potential of geographical expansion.
Technical View
The price action has been trending downward and ranging at a strong support price of N10 per share, trading between the value area of N14.40 and N8.80 which are the strong resistance and support levels of the stock.
Traders are therefore advice to play within the said trading zone. In other words, position can be taken at this appropriate price support level. Fidelity Bank is good for all investment goals, whether you are thinking short or long-term. This bank has been able to survival the ups and down of the nation economy. It has consistently paid dividend on positive earnings that has supported its price. The recent candles indicate some volatility with a mix of bullish and bearish intra days but the prevailing trend remains downward to resist decline.
Money Flow Index: Money flow line is looking down to indicate that funds are leaving the stock and momentum is becoming weaker as revealed by the price action
MACD: The stock is trading on a low and weak momentum as MACD remains bearish and below the signal line.
Relative Strength Index (RSI): The RSI is at 50.59, indicating neither overbought nor oversold conditions. It is leaning towards the lower end, suggesting there might be some bearish and bullish momentum which will create a potential buying opportunity if it approaches oversold zone that is below 30.
On Balance Volume (OBV): The OBV line is trending downward, with a value of 4,064,758,784, which can indicate that selling pressure is dominant over time and may support a continuation of the current trend.
Conclusion
Fidelity Bank Plc continues to redefine export and trade-focused banking in Nigeria, especially with its unwavering commitment to delivering excellent customers relationship, while creating value for all stakeholders to sustain growth to support profitability and share price.
