Fidelity Bank: Investors return focus on bank’s profitability

The Nigerian Stock Exchange (NSE) last week published the full-year results of Fidelity Bank.

The bank’s profit before tax (PBT) increased by 72 percent to N15.5 billion from N9 billion in 2013FY. Profit after tax (PAT) increased by 79 percent to N13.8 billion from N7.7 billion in 2013FY. Net loans and advances increased by 27 percent to N541.7 billion from N426.1 billion in 2013FY.

The bank’s full-year result may have enticed investors as they raised bet on Fidelity Bank shares helping to push the price up by N0.57 or 38 percent last week from N1.50 to N2.07.

Fidelity Bank recorded 2 percent increase in customer deposits to N820 billion from N806.3 billion in 2013FY, while total equity increased by 6 percent to N173.1 billion from N163.5 billion in 2013FY. Its total assets increased by 10 percent to N1.187 trillion from N1.081 trillion in 2013FY.

Dividend per share (DPS) increased by 29 percent to 18k from 14k in 2013FY. Highlights of the bank’s 2014 full-year financial show that interest income increased by 21 percent to N104.3 billion from N86.3 billion in 2013FY.

Net interest income before impairments increased by 58 percent to N48.8 billion from N30.8 billion in 2013FY. Operating income increased by 15 percent to N72.6 billion from N63.3 billion in 2013FY. Total expenses increased by 5 percent to N57.1 billion from N54.3 billion in 2013FY.

Fidelity Bank, which is listed on the banking subsector of the financial services sector, has a market capitalisation of N59.977 billion and shares outstanding of 28,974,797,023.

Soon after the release of the results at the Nigerian bourse, Olubunmi Asaolu-led team of financial analysts at FBN Capital Limited said, though their estimates were under review, “we rate Fidelity shares neutral.”

Their views: “Fidelity ended the year with an ROAE of 8.1 percent. While this is an improvement over 2013 (5.0%), it confirms that Fidelity’s profitability remains among the weakest in the sector. The bank has not delivered an ROAE over 15 percent since 2008. The 2014 results came in close to consensus estimates. As such, we would not expect to see material changes to 2015 estimates. The bank has proposed a dividend of 18 kobo; up from 14 kobo in 2013 (we assumed a flat DPS y/y). The payout ratio works out as 38 percent, below the 50 percent we saw in 2013. The yield is 10.5 percent. We believe this yield will support the stock in the very near term. Beyond that, we would expect the market to return its focus to the bank’s profitability, for which we do not expect to see substantial improvements in the medium term.”

Nnamdi Okonkwo, managing director/CEO, Fidelity Bank, while commenting on the results, said: “Our 2014 performance is a testament to the significantly improved optimisation of our balance sheet.”

He said PBT growth of 72 percent was driven by a 27 percent growth in the loan book while cost of funds declined over the period. This translated to a 58 percent growth in net interest income and a 200bps growth in NIM to 6.0 percent. Cost of risk normalised to 0.8 percent from 1.9 percent in the 2013FY.

“Our retail banking strategy gathered increased momentum in 2014, with the bank acquiring over 471,000 new retail customers and core low-cost retail deposits grew by 18 percent, which impacted positively on our funding cost. We also witnessed improved operational efficiency as the bank leveraged alternative electronic channels to reduce our cost to serve; operating expenses (excluding regulatory costs) grew by 3 percent year-on-year (YOY) which was significantly below the inflation rate.

“Key regulatory ratios remained well above set limits which resulted in the bank paying a dividend of 18k per share, which translates to a dividend yield of 11.5 percent.

“Though, the operating environment remains challenging due to strong macro-economic headwinds, we remain committed to the execution of our medium-term strategic objectives, which are focused on the retail/SME/e-banking/niche corporate banking segments. We are confident of delivering another positive set of results in the 2015FY.”