Fidelity Bank Q2 2017 results: first reaction

Late yesterday Fidelity Bank (Fidelity) published Q2 2017 results which showed that PBT grew by a stellar 155% y/y to N5.4bn. The key driver behind the strong y/y growth in earnings was a 20% y/y growth in profit before provisions. However, flat loan loss provisions y/y also helped the results. In terms of the revenue contributions, both revenue lines contributed to the solid growth: both grew by c.20-21%. Further down the P&L, PAT expanded by 110% y/y to N7.7bn, thanks to a 67% y/y growth in other comprehensive income.

Compared with our forecasts, PBT beat by 148% because of positive surprises in non-interest income, funding income and opex, in that order. The strong positives on these lines offset a negative surprise in loan loss provisions. The positive surprise in the PAT was greater (319%) because of the strong other comprehensive income. To put the strength of the results in proper context, Fidelity’s H1 PBT of N11.0bn is already ahead of consensus 2017 PBT forecast of N10.7bn.

Sequentially, PBT grew by 11% q/q. Although both revenue lines contributed, non-interest income which grew by 130% q/q was the major driver. Funding income grew by a modest 10% q/q, relatively. As such, pre-provision profits advanced by around 30% q/q. The revenue contributions were strong enough to offset a sequential spike in loan loss provisions and opex which increased by 441% q/q and 15% q/q respectively. Similar to the y/y trends, PAT grew strongly, by 136% q/q, thanks to the positive result in other comprehensive income (the bank reported an OCI loss of –N1.0bn in Q1 2017).

The strong growth in non-interest income was underpinned by solid growth in fx trading income which grew by 165% y/y in H1 and mark-to-market gains on fixed income securities. When annualised, Fidelity’s loan impairment charges for H1 2017 translate to a cost-of-risk of 1.3%, higher than the 1.0% guidance provided by management on its Q1 2017 conference call. Although this will draw some scrutiny from the market, the strong results should more than compensate.

Given that Fidelity Bank’s H1 2017 PBT tracks well ahead of consensus 2017 PBT forecast of N10.7bn, we expect to see marked upward revisions to consensus earnings forecast and a positive reaction from the market.

Year to date, Fidelity shares are up 63.1% ytd compared with a 34.6% return on the index.

We rate Fidelity shares Neutral. Our estimates are under review.

Fidelity Bank Q2 2017 results: actual vs. FBNQuest Research estimates (N millions)

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