FBN Holdings earns N293.3b

 

 FBN Holdings earns N293.3b
Urum-Kalu-Eke

 

FBN Holdings Plc yesterday announced its unaudited results for the six months ended  June 30, 2018 with gross earnings of N293.3 billion. The earnings rose 1.6 per cent year-on-year when compared with last year’s figures.

The company’s profit before tax rose 9.1 per cent to N38.9 billion, as against 2017 figure N35.6 billion while profit after tax stood at N33.5 billion, up 13.7 per cent when compared with N29.5 billion in 2017.

Its total assets stood at N5.3 trillion, up 1.3 per cent year-to-date while customer deposits rose 4.1 per cent to N3.3 trillion, s against N3.1 trillion in 2017.

FirstBank indicated its intention to call the 8.25 per cent $300 million FBN Finance Company B.V. Subordinated callable note due in 2020. The bank opened a digital laboratory as part of its strategy to drive innovation in the digital banking space.

Commenting on the results, its Group Managing Director, UK Eke, said: “FBNHoldings continues to make steady progress towards delivering on its strategic targets. This has been demonstrated with a 13.7 per cent  y-o-y increase in profit after tax, 21.4 per cent y-o-y growth in non-interest and 15.4 per cent y-o-y decline in impairment charge. Clearly, the Group is on its way to delivering its promises on asset quality, enhancing revenue generating capacity through non-interest income and driving further efficiencies.”

As we ramp up initiatives to grow interest income, we remain focused on the implementation of key initiatives across our subsidiaries and further strengthen our businesses towards delivering sustainable performance as well as optimising returns to our shareholders.

Commenting on the results, the Managing Director/CEO of FirstBank and its Subsidiaries, Adesola Adeduntan, said: “The Commercial Banking Group reported a relatively strong set of results and I am pleased to report consistent improvement towards our strategic objectives. This is reflected in a strong 28.5 per cent y-o-y increase in non-interest income, 15.5 per cent y-o-y reduction in the impairment charge and a marginal increase of 0.9 per cent y-o-y in operating expenses, despite the high inflationary environment.”

7-years after, FBN Holdings fails to disclose bad debts on ₦700b provisioning

 

7-years after, FBN Holdings fails to disclose bad debts on ₦700bn provisioning

 

Nigeria’s foremost banking institution, First Bank of Nigria Holdings Plc, has lately been emeshed in controversy bothering on lack of trust of its stakeholders, particularly its shareholders, following its failure as a publicly quoted entity, to disclose how it has handled the issue of of its bad debts.

The banking institution, was particularly berated for its failure to disclose how much it has recovered from its whooping bad debts otherwise known as non-performing loans since 2011, seven years after it made an estimated ₦700 billion provisioning for the debts in its books.

The development had led to an ugly scenerio at the company’s annual general meeting (AGM), held recently at the prestigeous Eko Hotel, as shareholders held up the meeting for almost one hour.

This followed the refusal of the board Chairman, Mr Oba Otudeko, who apparently didn’t want the matter to be discussed, to recognise an outspoken shareholder, Mr. Nonah Awo, who wanted to ask the board of the banking institution why it has failed to tell how much is the bank’s debts portfolio and the level of recovery sofar achieved.

The distruption of the meeting on Awoh’s insistence to speak backed by the voiceforous Shareholders protest, forced the the board, led by Otudeko to backdown and allow him to eventually take his turn to speak.

Reeling out what he described as the sins of the bank against its shareholders, on the issue of the bank’s NPL, Awoh chided the board and management of the banking institution, over its failure to as a matter of importance to disclose how much it has recovered from the festering non-performing loans, to which a huge ₦700 billion provisioning was made seven years ago.

He stressed that the board of the bank owe shareholders the obligation to know the result of the effort of the company at recovering the huge debts, which have impacted negatively on the activities of the bank, as well as drastically reduced return on investment to shareholders, who were being paid insignificant dividends as a result of the poor financial situation of the foremost financial institution in the last five years.

He said, ‘The board of the company must respect shareholders. I know the bank can be stronger, the recovery of the loans will make the bank a better institution”.

He warned that unless the board wakes up to his responsibility to recover the bad debts, which he said is the only way the bank can return to its enviable position, shareholders may be doomed forever, as they will remain the worst for the situation, in terms of low return on their investments, as seen in last couple of years, where dividend payments had insignificant compared to what was known of the banking group’s return to its shareholders.

The only response the banking group could muster against the indictment was the assurance by the Group Managing Director, Mr. Urum Kalu Eke that the board of FBN Holding was determine to recover all the bad loans, which gave rise to the huge provisioning for the bank.

Eke who said the holding company had set up a special committee set up to address the issue, saying an asset management units has been created for the purpose, admitting that the banking group effort presently through its recovery team has witnessed the traditional low recovery .

According to him “even though we have not recorded a full resolution of our Non-Performing loans (NPL), we have made significant progress in dealing with a number of these names and more fundamentally, ensured a strong asset quality from recent credits.

Investors turned blind eyes to the shares of the company, on the day the annual account was released on the floor of the NSE, as the share price of FBN Holding went down by 5.22, contrary to expectations of upbeat transactions whenever such a company’s results were released.

Pearson PLC (LON:PSON) Stock Rating Reaffirmed by Citigroup; First Bancorp (FBP) Has 1.34 Sentiment

 

First Bancorp (FBP) investors sentiment increased to 1.34 in 2018 Q1. It’s up 0.35, from 0.99 in 2017Q4. The ratio increased, as 86 investment managers started new or increased equity positions, while 64 sold and decreased stock positions in First Bancorp. The investment managers in our database now own: 186.41 million shares, down from 191.75 million shares in 2017Q4. Also, the number of investment managers holding First Bancorp in top ten equity positions increased from 0 to 1 for an increase of 1. Sold All: 16 Reduced: 48 Increased: 56 New Position: 30.

Today, Citigroup reconfirmed their Buy rating on Pearson PLC (LON:PSON)‘s stock in an analyst note released.

The stock increased 0.12% or $0.01 during the last trading session, reaching $8.31. About 2.02 million shares traded or 12.74% up from the average. First BanCorp. (FBP) has risen 45.74% since July 25, 2017 and is uptrending. It has outperformed by 33.17% the S&P500. Some Historical FBP News: 27/04/2018 – FIRST BANCORP PR 1Q EPS 15C, EST. 8.0C; 19/04/2018 – Premier Fincl Bancorp, Inc. Announces Agreement to Purchase First Bank of Charleston; 13/03/2018 – First Bank & Trust Company Participates in VBA Bank Day Scholarship Program: Virginia High School Seniors Will Shadow Bankers for a Chance to Win College Scholarship Money; 19/04/2018 – Premier Financial Bancorp: First Bank Will Be Merged Into Premier Bank; 19/04/2018 – Premier Financial Bancorp, Inc. Announces Agreement To Purchase First Bank Of Charleston; 19/04/2018 – PREMIER FINL BANCORP, TO BUY FIRST BANK OF CHARLESTON; 16/05/2018 – Correction to Press Release: Fitch Affirms First Bancorp’s Ratings at ‘B-‘ and Removes Negative Watch; Outlook Stable; 15/03/2018 – First Bancorp Announces Cash Dividend Increase; 30/04/2018 – FIRST BANK CHIEF RISK OFFICER ALEBIOSU SAYS ON INVESTOR CALL; 21/03/2018 – FIRST BANK SEES AFRICA UNITS PROFIT CONTRIBUTION 10% IN 5 YEARS

First BanCorp. operates as the bank holding firm for FirstBank Puerto Rico that provides a range of financial services and products to retail, commercial, and institutional clients. The company has market cap of $1.80 billion. The Company’s Commercial and Corporate Banking segment offers commercial real estate and construction loans, and floor plan financings, as well as cash and business management services; and underwrites municipal securities, and other investment banking services. It has a 24.81 P/E ratio. The companyÂ’s Consumer Banking segment provides auto, boat, and personal loans; credit cards; lines of credit; and deposit products comprising interest bearing and non-interest bearing checking and savings accounts, individual retirement accounts, and retail certificates of deposit, as well as engages in the finance leasing and insurance activities.

Clover Partners L.P. holds 4.16% of its portfolio in First BanCorp. for 620,266 shares. Rock Point Advisors Llc owns 1.19 million shares or 3.52% of their US portfolio. Moreover, Stieven Capital Advisors L.P. has 2.3% invested in the company for 2.41 million shares. The Illinois-based Fortaleza Asset Management Inc has invested 1.28% in the stock. Jacobs Asset Management Llc, a New York-based fund reported 950,000 shares.

The stock decreased 0.29% or GBX 2.6 during the last trading session, reaching GBX 901.4. About 364,098 shares traded. Pearson plc (LON:PSON) has 0.00% since July 25, 2017 and is . It has underperformed by 12.57% the S&P500.

Pearson plc provides educational materials and learning technologies for teachers and students worldwide. The company has market cap of 6.98 billion GBP. It operates through North America, Growth, and Core divisions. It has a 18.06 P/E ratio. The firm offers courseware services, including curriculum materials provided in book form and/or via access to digital content; and assessments, such as test development, processing, and scoring services.

Lafarge Africa Reports Weaker-Than-Expected Q2 2018 Results …Post N3.4bn Pre-Tax Loss

 

 

Lafarge Africa has reported a N3.4 billion loss in its Pre-Tax Q2 profit for 2018 financial year.

The cement company’s financial state of health when annualized, tracked behind consensus of 2018 Profit Before Tax forecast of N4.6 billion, even as experts claimed that they expect a downward revisions to consensus 2018 Earnings, Profit Before Tax forecast and a negative reaction by the equities market.

According to FBNQuest Research, an investment and leading research house in the equities market, said the company’s Pre-Tax loss in Q2 was occasioned by the key drivers were a gross margin contraction of -636bp y/y to 25.7 per cent and 92 per cent y/y spike in net interest expenses.

“While the y/y growth in net interest expense was driven by the company’s increased leverage following the conversion of quasi-equity loans to debt, we believe that the contraction in gross margin is most likely due to one-offs related to the firms enterprise resource planning software and possibly losses delivered by Lafarge South African operations. We would be looking to get clarification on these from management.”

On the positives, the Research firm said with Q2 sales of N8.1 billion, the company’s sales was up 11 per cent y/y.

“Based on the read-across from rival Dangote Cement, we believe that the double-digit growth in sales, was driven by unit volume growth underpinned by a recovery in cement demand. According to industry estimates, the cement market in Nigeria posted strong unit volume growth of c.10% y/y over the H1 2018 period.

It will be recall that the Company’s first-quarter 2018 results showed revenue decreased by 0.8 percent to N80.64 billion, from N81.3 billion in Q1’2017.

The decline in Lafarge revenue growth was accompanied by increases in input costs, operational expenses and a marked increase in finance costs.
Pre-tax losses of N2.9billion, represents a decline of 131.2percent from pre-tax profit of N9.4billion the company recorded in corresponding first-quarter period of 2017.
Lafarge Africa Plc also reported post-tax loss of N2billion in Q1’18 respectively, down by 138.8percent, from N5.16billion post-tax profit in Q1’17.
Investors reacted negatively to these results as sell orders pushed the stock price down to N43.6kobo, nearing a 52-week low of N43.20kobo. The stock price lost 85kobo or 1.91 percent on Monday.

“We expect to see marked downward revision to consensus 2018E earnings forecast and a significant sell-off in the shares over the next few days,” said Tunde Abidoye-led team of research analysts at FBNQuest Capital Research in their April 23 note to investors.
“The weak earnings were driven by a combination of factors including a significant gross margin contraction of 338 basis points (bp) year-on-year (y/y) to 22.3percent, a 41percent y/y rise in operating expenditure (opex) and a 133percent y/y spike in net interest expense,” the analysts added.

The company recorded a revenue of N80.6 billion for the first quarter (Q1) 2018, 1 percent less than the N81 billion recorded in the corresponding period of 2017, after volume effects in Nigeria and South Africa.

Why it makes sense for FBN to recall the 8.25% $300m Subordinated Callable Bond

 

The Nigerian Stock Exchange has just been notified that First Bank of Nigeria, the largest subsidiary of FBN Holdings plc, intends to exercise its option to redeem the fixed rate Note held by FBN Finance Company BV before its maturity date.

In exercising its option, the company intends to call the $300 million 8.25% subordinated Note raised from the international debt markets. The notes which were to mature in 2020, without the call option, will be called and repaid on August 7, 2018. According to the SEC filing, the objective of this corporate action is to manage the company’s liquidity as well as enhancing the efficiency of the bank’s balance sheet.

As a recap, a callable bond is a bond that grants the issuer the option to redeem or repay the principal of the bond before its maturity date. Different factors such as prevailing market rate determine whether an issuer will call a callable bond or not, so it is not always that a callable bond gets called. Now that FBN Holdings has decided to call the bond, the question is, does it make economic sense to do so, if yes, why?

We strongly feel that this corporate action is a smart move on the part of FBN to call the bond and here is why:

Strong Balance Sheet

FBN Holdings has a strong balance sheet and the cashflow to effectively redeem the bond. According to its March 31, 2018 financial statement, FGN Holdings has N1.4 trillion in its cash and cash equivalent at the end of the period which translates into $3.9 billion at a conservative exchange rate of N360/$. This is more than enough to execute the bond redemption and continue to grow the business.

Saving on Interest Expense

This callable bond pays 8.25% annual interest which amounts to about $24.75m annually. Fortunately for the bank, yield has been falling globally with some countries recording negative interest rates.

For example, the yield on the US 10-year Treasury note stood at 2.8327 percent on Friday, July 5th, 2018, although there are projections by analysts in the US that the rate will most likely spike to between 3.5% and 3.75% by the end of the year. There is therefore no gain for FBN to continue to pay 8.25% on the bond when the market interest rate has fallen to around 2.85%. Even if the Holdings Company does not have enough cash to redeem the bond, it makes economic sense to refinance it with another bond that pays far less in coupon interest.

Therefore, by redeeming the bond, FBN will be saving about $24.75m yearly August 8th 2018 to 2020 assuming that there is no alternative investment that would yield more than 8.25% to the company. In addition, having so much money in cash that pays minimal interest while paying 8.25% on callable Notes will have negative impact on the company’s balance sheet and as such, redeeming or calling the Note is quite a smart move.

Pricing Action Suggests Investor Readiness for a call

Ordinarily, as bonds head to maturity or expected call date, they undergo what is usually known as “pull to par or pull to maturity or pull to call”, which is the tendency for prices to trend towards par value unless there is a high likelihood of default, in which case, the price of the bond trades at discount to par. Pricing action for this Note suggests that investors were expecting a call. It may not be a thing of surprise to institutional investors that FBN Holdings is calling the bond as price analysis shows that the bond was being priced very close to par.

According to available pricing information, the bond was priced at 100.1(which is very close to par of 100)  on July 5th, 2018 suggesting that institutional investors and analysts were pricing the bond in anticipation of a possible call.

 

 

The monetary policy committee (MPC) holds its latest meeting in Abuja today and tomorrow.

The monetary policy committee (MPC) holds its latest meeting in Abuja today and tomorrow. For two successive meetings we anticipated a small rate cut but we now see another unchanged stance. The committee’s principal fears are that the expansionary fiscal policy will undermine macroeconomic stability and that, in line with trends in selected emerging markets such as Argentina and Turkey, the offshore portfolio community will exit Nigeria in increasing numbers. It does acknowledge the impressive disinflation gains this year but sees them vulnerable in the second half to the FGN’s fiscal stance.

· The headline inflation rate was 12.5% y/y at the time of the last MPC meeting. It has since slowed further to 11.6% in May, and we forecast a further reduction to 10.8% in the report for June that should be released very shortly.

· The positive base effects fade after June, and a pick-up in inflation in H2 2018 is widely anticipated. Our own forecast for December remains 12.1% y/y. Most other analysts and the IMF see a higher rate.

· This pick-up is largely based upon the FGN’s fiscal policy. The MPC cited the 2018 budget (since signed off), the release of funds for outstanding capital items under the 2017 budget, the bunching of spending in view of the electoral calendar, rising FAAC distributions and proposals for a substantial rise in the national minimum wage.

· The 2018 budget is expansionary but in our view, based upon its highly ambitious revenue assumptions, it is most unlikely that the projected spending will be executed in full. FAAC distributions have come to a temporary halt due to stalled negotiations between the parties involved but will obviously resume.

· The minimum wage is a far greater concern. Organized labour is looking for a more than threefold increase on the current N18,000 per month. Some compromise is to be expected and the increase may be staggered. That said, the rise approved by the National Assembly before the 2011 elections destabilized the macroeconomy, not least by boosting recurrent spending by the FGN and therefore the required oil revenues to cover the additional costs. Put differently, it added to the vulnerability of a non-diversified economy.

· Offshore investors have different remits and different investment criteria. We would be surprised by a mass exit in the current oil price environment. We also still feel that such investors would generally exit markets with weak external balance sheets such as Turkey and South Africa long before Nigeria.

· In May the committee considered all three options: indeed one member voted for a modest rate hike. There is still the possibility of a rate cut before year-end if the committee’s fears about the consequences of an expansionary fiscal policy and about a substantial exit by offshore investors are not borne out. We have to acknowledge that prospects of such a cut are fading fast.

FBNQuest Capital FI-FX Daily Watch 23 July 2018

FBNQuest Capital FI-FX Daily Watch 23 July 2018

Opening market liquidity on Friday was N468bn (positive). Interbank rates closed within a range of 15% to 19%. On the NTB secondary market, there was an uptick in yields at the shorter end.

The FGN bond market was relatively quiet, and yields dipped for selected maturities across the curve. As for the Eurobond market, yields narrowed for maturities under our coverage.

The CBN’s daily fx intervention was again US$0.5m, at N305.35. Additionally, there was a retail fx SMIS. Apart from the usual offer in USD, the CBN (for the first time) also offered Chinese Yuan (CNY) for sale. The intervention in CNY was for the payment of renminbi-denominated LCs for raw materials & machines as well as agriculture. Turnover at the NAFEX decreased from US$220m on Thursday to US$116m. Indicative rates ranged from N350 to N363. Reports from a wide range of US companies point to growing concerns about the impact of a full-blown trade war.

FBNQuest expands LBS financial resource centre

 

FBNQuest Merchant Bank, the merchant banking and asset management subsidiary of FBN Holdings Plc, has expanded a financial resource centre at the Lagos Business School–Pan Atlantic University.

The bank said the initiative was in line with its commitment to support reputable educational establishments with strong business and finance faculties.

It said the centre, called ‘Bloomberg Room’, would enable students to get quick access to research tools, financial market data, analysis of banks, and other economic data to facilitate effective learning at tertiary level.

The initiative, according to the merchant bank, commenced in 2014 with two terminals in the LBS library, and was expanded to 12 terminals due to demand.

It said the expansion was also driven by the identified need to equip more students and the library community with tools for knowledge in finance and research.

The Managing Director/Chief Executive Officer, FBNQuest Merchant Bank, Kayode Akinkugbe, said at a media briefing in Lagos on Thursday, “We are conscious of the role technology plays in providing people with access to information. We believe it is important to equip students with the right financial tools and research, and we want to contribute meaningfully to that.

“We started the initiative five years ago, and this expansion is something we were keen to deliver because we know that the impact at this stage of learning can be profound. Through the resource centre, we also provide access to our thought-leading FBNQuest Capital Research, which we believe will serve as an additional resource for the students.”

The Dean, LBS, Dr Enase Okonedo, who highlighted the importance of the resource centre to students, said, “It fits perfectly with the school’s effort to provide global standard teaching and knowledge sourcing facilities.

“The students’ experience is significantly enriched, and the benefit of added qualifications is a bonus. We are glad to have this partnership with the organisation, and the Bloomberg terminals have been impactful for the beneficiaries and the school in general.”