FBN Holdings (FBNH) recently released its unaudited H1’21 results, reporting Gross earnings of ₦279.7 billion (-3% y/y). The earnings dip was the result of a 22% y/y drop in Interest Income, which came in at ₦161.0 billion – caused by a 56% fall in Investment Securities Income.
Also, despite Interest Expense coming in 25% lower y/y at ₦57.2 billion, Net Interest Income declined by 21% y/y to ₦103.8 billion. On the other hand, the group reported an impressive 48% y/y jump in Non-Interest Revenue, which rose to ₦118.7 billion, thanks to a 23% improvement in Net Fees and Commissions (₦57.4 billion).
On the cost side, impairments on loan losses fell by 20% y/y to ₦24.5 billion, while Opex grew 10% y/y to ₦152.6 billion amid a 35% increase in regulatory charges. Efficiency-wise, the bank’s cost-to-income ratio came in at 68.6% for the period, 4.15ppts weaker than the same period in 2020.
Overall, the bank’s PBT came in at ₦45.2 billion (+9% y/y), while PAT was 7% higher y/y at ₦38.1 billion. However, it is notable that in H1’20, profits for the period including discontinued operations amounted to ₦48.5 billion, due to the sale of the group’s insurance division. This year’s profits yielded an EPS of ₦1.05 (H1’20: ₦1.00) and ROAE of 9.9% (H1’20: 11.2%).
FY’21 profits forecasts improved after NIR boost
So far, we have seen banks report solid growth in Non-Interest Revenue. In the case of FBNH, this has been primarily down to strong transaction volumes and increased adoption of USSD and e-Banking platforms (the bank reported a 42% increase in e-Banking revenue for H1).
This rise in transaction volumes, coupled with the expected improvement in the FI yield environment, would likely support further increases in NIR in H2, thus we raise our NIR forecast for FY’21 to ₦233.7 billion (Previous: ₦232.8 billion).
Conversely, the bank’s Yield on Assets was down to 5.9% in H1 from 8.7% in the corresponding period in 2020, as Interest Income from loans and advances fell 6% y/y and yield on T-bills dropped by 56%, while net interest margin fell to 3.8% (H1’20: 5.5%).
Interestingly, the bank has seen a 14% YTD increase in Net Loans and Advances, which has helped to cushion some of the declines in asset yields. Looking forward, we project a further 8% increase in loans in H2, along with a forecasted yield on assets of 5.9% for a new Interest Income prediction of ₦353.3 billion (Previous: ₦324.6 billion).
On the expense side, after the positive impairments surprise in H1, we have lowered our FY Impairments estimate to ₦48.9 billion (Previous: ₦52.2 billion). However, we also raised our Opex forecast to ₦328.5 billion (Previous: ₦316.1 billion) on the H1 underperformance. This gives a new FY PAT projection of ₦79.8 billion (Previous: ₦72.9 billion).
TP revised to N10.73 (Previous: N10.23)
Our revised profit forecast yields an ROAE of 9.8% (Previous: 9.2%). This, along with an EPS of ₦2.17 (Previous: ₦2.03) and a final dividend projection of ₦0.48/share (Previous: ₦0.45), gives a revised 12-month Target Price (TP) of ₦10.73 (Previous: ₦10.23).
FBNH is currently trading at ₦7.40, 38% below our TP and at a P/Bv of 0.4x, compared to a Tier-I average of 0.6x.