FCMB Group Plc 9M'18 results - FX revaluation gains boost earnings

30 November 2018

FCMB Group Plc (FCMB) 9M'18 results "" Gross earnings increased by 11.7% YoY to N128.4 billion, in line with our estimate of N125.9 billion (+2.1% deviation). More impressively, after tax earnings leapt 107.4% YoY to N11.3 billion, beating our estimate and consensus estimate of N8.8 billion (+28.6% deviation) and N9.7 billion (+16.5% deviation) respectively. The increase in the bank's 9M'18 bottom line was significantly propelled by a 76.4% YoY growth in non-interest income.

Other highlights:

·     Q3'18 interest income came in relatively flat (-1.7% QoQ) at N31.1 billion, as a 3.3% QoQ growth in interest from loans and advances moderated the impact of an 18.5% QoQ decline in interest income from investment securities.

·     Net interest income improved by 2.6% QoQ, supported by a 7.1% QoQ decline in interest expenses recorded during the quarter. Overall, NIM was relatively flat at 8.0% during the quarter (Q2'18"”7.9%), while cost of funds declined to 5.4% from 6.0% in Q2'18.

·     Non-interest income soared to N16.5 billion (+94.5% QoQ), the highest amount recorded in the last five (5) quarters. This was significantly bolstered by the c.N9.0 billion FX revaluation gains recorded during the review quarter (Q2'18"”N408 million). Non-interest income was also supported by the 7.4% QoQ growth in net fees and commission income, despite the 69.0% QoQ decline in trading income.

·     Impairments losses climbed 194.1% QoQ to N7.3 billion during the review quarter. This, consequently, worsened the bank's cost of risk which rose to 4.5% from 1.6% in Q2'18. Operating expenses was relatively flat at N19.5 billion (Q2'18"”N19.7 billion) in Q3'18, however, cost to income ratio improved to 56.6% (Q2'18"”75.7%), thanks to a 32.6% growth in operating income.

·     FCMB grew loans by 2.7% QoQ in Q3'18 to N601.9 billion. Notwithstanding, this still represents a 7.4% YtD decline. In contrast, the bank's deposit base reflects a 9.6% YtD increase to N755.9 billion, while total assets also improved by 9.2% YtD to N1.3 trillion.

Analyst take: We highlight that FCMB's 9M'18 result was significantly bloated by the N9.0 billion FX revaluation gain booked in Q3'18. While we expect this to go on to support the bank's FY'18 result, we are cautious in our excitement given that we do not foresee similar lofty numbers beyond FY'18. More so, we are concerned about the 15.8% YoY rise in impairment losses, a contrast to an average decline of 39.7% YoY observed across our coverage banks. Based on our last review, our target price for the counter is N2.95 (BUY). We will review our estimate after further clarity from management following the 9M'18 conference call.

Kindly click here for a copy of FCMB Group Plc. 9M'18 results.

FCMB Group Plc (Bloomberg: FCMB) will be hosting a teleconference call and webcast for analysts and investors on Wednesday 5 December at 15.30 Lagos/ 14.30 London/ 09.30 New York/ 16.30 Johannesburg, with its senior and divisional management to review these Results and respond to questions from investors and analysts.

The teleconference call facility can be accessed by dialing:

Lagos Access Number:+234 1 277 2430

UK Access Number: +44 (0) 330 336 9125

USA Access Number:+1 929 477 0324

South Africa Access Number:+27 11 844 6054

And then entering the following confirmation code: 3597963

Participants will have to quote the above code when dialing into the conference call.

Regards,

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