FCMB Group Plc 9M’19 – Earnings falter, kept afloat by non-recurring reversals

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CardinalStone Research 
FCMB Group Plc (FCMB: TP 1.80 – HOLD) reported a 5.3% YoY decline in EPS to N0.54 for 9M’19 in its latest filing with the Nigerian Stock Exchange (NSE). The decline in earnings reflected significantly lower FX gains amidst a 19.3% YoY jump in personnel expenses.
Some highlights:
  • Interest income weakened during the quarter (-12.6% QoQ), dragged by a slump in interest earnings from loans and advances (-21.4% QoQ). Although FCMB slightly grew loans (+1.5% QoQ) during the quarter, the bulk of the growth likely came in the latter part of the quarter on CBN’s push on the LDR front. This likely explains the muted transmission of the growth in loans to interest income.
  • Non-interest income came in strongly during the quarter (+60.5% QoQ to N12.3 billion), largely bolstered by reversal of c.N4.8 billion relating to provisions for litigation deemed no longer necessary. Other components of fee income were relatively flat QoQ.
  • Adjusting for the impact of the N4.8 billion litigation-related reversal, which we believe is non-recurring, FCMB would have made a loss of c. N1.5 billion in Q3’19. This is concerning, in our view.
  • Operating expenses increased by 17.8% QoQ, causing a 6.7ppts QoQ rise in cost to income ratio to 78.8%. Adjusting for the non-recurring litigation-related reversal, effective cost to income ratio increases to 93.9% in Q3’19.
  • As at September 2019, FCMB’s loan to funding ratio was 57.4%, lower than CBN’s initial guideline of 60.0%. However, we note that NPL and Capital adequacy ratios of 3.5% and 18.0, respectively, are well within the regulatory limits.
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FCMB Group Plc 9M'19 - Earnings falter, kept afloat by non-recurring reversals FCMB Group Plc 9M'19 - Earnings falter, kept afloat by non-recurring reversals

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