Earnings Report /
Nigeria

Fidelity Bank: Revenues drive good Q3 19 results; reiterate Buy

    Olabisi Ayodeji
    Olabisi Ayodeji

    Equity Research Analyst, Banks (Africa)

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    Tellimer Research
    29 October 2019
    Published byTellimer Research

    Fidelity’s Q3 19 net income rose 13% yoy to NGN7.1bn, above our NGN6.4bn forecast due to lower-than-expected cost of risk of 0.2% (vs 0.5% forecast). Pre-provision profit (PPP) was up 11% yoy and in line with expectations, driven by increases across major revenue lines. Net interest margin was flat yoy, but better than expected at 4.4%, while cost/income ratio was higher than expected at 70%, but down 7.0ppts yoy. A significant net impairment reversal recorded in Q2 19 explains the 9% qoq decline in net income as PPP rose 31% qoq. 

    Loan growth and NPL decline match sector qoq trend. Gross loans were up 9% qoq, in line with peers, although above-average growth in previous quarters meant Fidelity’s 27% yoy growth was far ahead of the 6% rate for others. Stage 3 loans fell 3% qoq, driving a 0.5ppts decline in the bad loan ratio to 4.8%, while provisions coverage ratio remained robust at 97% (up 5ppts qoq).

    Maintain Buy with TP of NGN2.30 and 54% ETR. At FY 19f PB of 0.2x (77% discount to frontier peers), we find Fidelity’s valuation attractive. We are also attracted to its recent strong loan growth, as well as its growing digital banking franchise, which now has over 2mn digital banking customers and over 80% of all customer transactions done electronically. On the downside, we are concerned about the bank’s weak operating efficiency, which continues to suppress profitability. Stanbic remains our top Tier 2 bank stock. 

    Our recently updated earnings forecasts and valuation estimates for our Nigeria banks coverage can be found here: Nigeria Banks: Good fundamentals, but tricky technicals; Buy 

    Financial results summary 

    Net interest income (NII)

    21,347

    20,110

    6%

    21,125

    1%

    Non-interest revenues

    6,944

    5,531

    26%

    6,926

    0%

    Total income

    28,291

    25,641

    10%

    28,051

    1%

    Total opex

    19,708

    17,897

    10%

    21,477

    -8%

    Pre-provision profit

    8,583

    7,744

    11%

    6,574

    31%

    Net attributable profit

    7,078

    6,278

    13%

    7,745

    -9%

    Net loans

    1,074,096

    830,375

    29%

    999,319

    7%

    Total deposits

    1,116,416

    986,830

    13%

    1,097,011

    2%

    NII/assets

    4.4%

    5.0%

     

    4.4%

     

    Cost/income

    70%

    70%

     

    77%

     

    ROE

    12.9%

    13.3%

     

    14.8%

     

    NPL ratio

    4.8%

    6.0%

     

    5.3%

     

    *NPL provisions coverage

    97%

    107%

     

    92%

     

    Source: Company accounts, Tellimer Research. *excluding statutory reserves