Yesterday, FCMB released its unaudited H1’21 results, reporting Gross Earnings of ₦94.2 billion (-4% y/y). The decline in earnings came as the result of a 5% fall in Interest Income (II) to ₦72.7 billion, caused by a 56% decrease in income from investment securities.
However, it is important to note that income from loans and advances actually improved by 22% y/y to ₦63.1 billion. Meanwhile, Non-Interest Revenue (NIR) moderated by 2% y/y to ₦21.6 billion, amid a 60% decline in FX gains and a 33% drop in income from trading and investments.
The weaker trading figures came as a result of lower transaction volumes in the T-bills market, as yields remained subdued through the half-year. These declines offset improvements seen in Fees and Commissions, which rose 17% y/y to ₦16.6 billion.
On the expenses side, the bank reported a 6% y/y increase in Opex to ₦51.6 billion, as AMCON charges rose 27% y/y to ₦7.3 billion, while Impairments dropped 48% y/y to ₦4.0 billion, thanks to a 4% decline in net impairments on loans and a 151% increase in write-backs on previously written-off provisions. Ultimately, the bank declared PBT of ₦8.9 billion (-20% y/y) and PAT of ₦7.6 billion (-22% y/y), yielding an EPS of ₦0.38.
FY’21 projections revised amid a sticky downward trend in NIR
As the bank managed to slightly outperform our Net Interest Income expectation (₦43.0 billion vs ₦42.5 billion), we have raised our FY’21 Interest Income estimate to ₦140.9 billion (Previous: ₦135.3 billion).
However, due to the higher interest expense recorded in Q2, as well as our expectation of a further increase in the cost of funds, we also raise our Interest Expense projection to ₦55.3 billion (Previous: ₦50.4 billion). This gives us a new Net Interest Income figure of ₦85.6 billion (Previous: ₦84.9 billion).
On the other hand, the underperformance in NIR raises some issues going forward. Milder FX revaluation gains compared to last year and reduced trading income lead us to moderate our FY’21 NIR prediction to ₦48.6 billion (Previous: ₦48.9 billion).
Finally, we have adjusted our Opex projection to ₦103.5 billion to reflect the higher Opex reported in Q2, although real operating expenditure is unlikely to further increase in the second half of the year. Thus, we expect FCMB to report FY’21 PBT of ₦17.6 billion (Previous: ₦19.7 billion) and PAT of ₦15.2 billion (Previous: ₦16.9 billion).
TP revised to ₦3.89 (Previous: ₦3.96)
Our new FY’21 projections yield an ROAE of 6.8% (Previous: 7.2%). This, along with an EPS of ₦0.76 and a final dividend projection of ₦0.15/share (Previous: ₦0.15) yields a revised 12-month target price of ₦3.89 (Previous: ₦3.96).
FCMB is currently trading at ₦3.02, 29% below our target price and at a current P/Bv of 0.3x, below our coverage average of 0.6x. We reiterate our BUY rating.
