Earnings Report /

FBC Holdings: FY 19 – Non-funded income drives performance

  • Upward review of service fees and revaluations spurs group’s performance

  • Leveraging off non-funded income

  • Upgrade to Buy from Hold

Tatenda Makoni
Tatenda Makoni

Equity Sales Trader

IH Securities
21 May 2020
Published byIH Securities

FBC Holdings reported a 626.3% y/y growth in total income from ZWL$145.92mn in FY 18 to ZWL$1.06bn largely sustained by growth in non-funded income based on historical results. Non funded income registered a 1110.7% growth year on year following upward review of service fees and a 4884.2% jump in net trading income in line with foreign currency and property revaluations. Slower growth of 163.2% was experienced in interest income. 

Interest expense, however, grew 363.2% following the repricing of interest expenses after the upward review of the overnight window by the RBZ, which outpaced the repricing of the group’s loan book. Operating expenses increased 481.2% y/y to ZWL$530.48mn from ZWL$91.28mn in line with inflationary pressures especially on staff related costs as the bank cushioned employees against the deteriorating economic environment. 

The Group recorded PAT of ZWL$295.87mn from ZWL$44.44mn translating to y/y growth of 565.8%, resultantly Headline Earnings Per Share grew from ZWLc6.95 to ZWLc47.88. Loans and advances improved from ZWL$405.51mn to ZWL$2.56bn, largely driven by the translation of the previously foreign currency denominated loans and advances. Consequently, the total assets for the bank ballooned to ZWL$6.11bn from ZWL$1.11bn based on historical results. Total equity improved by 431.8% from ZWL$178.71mn to ZWL$950.47mn. The dividend payout ratio decreased from 13.5% in FY18 to 8.0% in FY19. Dividend payout is expected to remain at current levels as the group channels earnings towards building its capital base to meet the new regulatory minimums. 

We upgrade our recommendation to Buy from Hold

We forecast RoAEs to rise marginally to 54.9% in FY 20. We estimate that FBC trades on a P/BV (+1) of 0.60x and P/E (+1) of 1.36x to FY 20 versus regional peers at P/BV 2.5x and P/E 9.9x for 20 20e. Using our combined method of DDM and Static ROE, we arrive at a TP of ZWL$1.80 implying an upside of 27.5%. Given the potential upside, we place a Buy recommendation. However, we remain cautious based on our concerns around policy volatility within the monetary space and pricing bottlenecks on loans, which will impact real returns.