FBNQuest Capital FCMB Group Q2 2018 results review: Maintaining Neutral rating

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.

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Ezeadichie Onyeka Michael is the Co-Founder of Haelsoft, a Professional Services Company in Nigeria that provides Information and Technology Services for small and big size companies in Nigeria(Africa). He is an Entrepreneur and Venture Capitalist with Expertise in Web Technology and Digital Marketing. He has developed & Implemented Digital Marketing Strategies(Campaigns) for top brands across sectors in Finance, Telecommunication, Ecommerce who operate in the African market. His professional experience includes key roles at Google Business Group(Nigeria), Google Women on the Web (Nigeria), Edubridge Consultant and Wild Fusion where he has trained over 500 Entrepreneurs on how to use various Web Technology products to succeed online. Customer centricity, User Experience, Conversion optimization are 3 pronged framework he applies around the often-frenetic world of web analytics to ensure that clients stay competitive in the market. He believes that investing in talent is the key to long term success for brands across Nigeria (Africa).

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