Maintaining Neutral rating
- Rolling over to 2019E: FCMB Group’s (FCMB) Q2 2018 PBT missed our forecast by a considerable margin. Although weakness in both revenue lines contributed, a negative surprise in opex was the primary driver behind the weakness. On its earnings conference call, management stated that opex growth was underpinned by a N1.0bn increase in the AMCON levy for the quarter. However, excluding the AMCON charge, opex still came in close to N1.0bn (or +5%) higher than our forecast. Consequently, we have increased our opex forecast by around 4.0% on average over the 2018-19E period. In contrast to opex, loan loss provisions surprised positively. As such, we have lowered our 2018E cost-of-risk forecast to 2.4% (from 2.5% previously), but still close to the high end of guidance. These revisions underpin the average cut of c.20% to our 2018-19E EPS forecasts. Despite the cut, our new price target of N3.01 is only 8% lower than our previous target because we have rolled over our valuation to 2019E. At current levels, our new price target implies a potential upside of around 51% from current levels. Despite the sizable upside potential implied by our price target, we are retaining our Neutral recommendation on the shares because we would like to see evidence of a sustained improvement in earnings over the next few quarters first
- Q2 PBT up 109% y/y, but below expectations: FCMB’s Q2 2018 PBT grew by 109% y/y to N3.8bn. The strong earnings growth was driven by a 59% y/y growth in non-interest income and a -51% y/y reduction in loan loss provisions. The y/y growth in non-interest income was underpinned by strong growth in income from tbills, fx trading income and fees generated from card services. Further down the P&L, PAT grew by 75% y/y. The slower growth in PAT relative to PBT was due to a combination of a 76% y/y spike in income tax expense and a negative result of –N677m in other comprehensive income (OCI) vs. -N46 in Q2 2017. Compared with our forecasts, PBT and PAT missed by 27% and 45% respectively because of negative surprises on both revenues lines and opex. The Q2 PBT is tracking behind consensus 2018 PBT forecast of N15.3bn.