NSE: FBNH l Bloomberg: FBNH NL EQUITY FIRST BANK OF NIGERIA HOLDCO. (FBNH) FX Volatility saves Giant from another fall First Bank of Nigeria Holdco. ( FBNH ) released FY2014 numbers recently, which showed Gross Earnings, Profits-Before-Taxes (PBT), and Profits-After-Taxes (PAT) growths of 21.30%, 1.69% and 17.28% respectively. This earnings performance represented the Holdco s first comparative PAT growth since H1:2013, and was majorly due to the substantial growth in Foreign Exchange income 570.92% YoY, which boosted Non-interest income. Although we are encouraged by the Holdco s return to comparative growth, we are sceptical that this level of Earnings growth can be maintained in 2015. Our valuation methodology puts FBNH at a target price of NGN9.96 (a premium of 4.73% to the current market price), thus we recommend a HOLD. Top line growth supported by Non-Interest Income growth: FBNH s gross earnings of NGN480.60bn was supported by interest and non-interest income growths of 12.05% and 66.12% YoY respectively. Interest income grew to NGN362.58bn from NGN323.62bn, while interest expenses growth outpaced interest income growth despite the marginal 4.16% YoY growth in deposits from customers. This growth in interest expenses was primarily due to the significant 192.72% YoY growth in borrowings. The substantial non-interest income growth was the major reason behind the improved earnings performance, and was driven by the 65.09%% YoY growth in insurance premium revenue, 570.92% YoY growth in Net FX income, and 153.24% YoY growth in other operating income. We note here that we expect that Q1:2015 FX income may be impressive, as the volatility of the currency which allowed for the growth in 2014 was still prevalent. However, we expect FY2015 FX income will drop significantly, barring any unforeseen economic and financial markets flux. Gross Loans-to-Deposits pegged at 72.8% which still allows for a significant amount of growth; however, the bank s CAR of 16.7% (under Basel II) may prove an impediment. Earnings performance magnifies by lower effective tax rate: FBNH s earnings before taxes grew by 1.69% YoY to NGN92.88bn from NGN91.34bn, as the effects of the 27.46% YoY growth in operating expenses (FY2014: NGN235.80bn, FY2013: NGN185.30bn) acted to depress the trickle-down from the top- to the bottom-line. Profit-After-Tax also advanced, more significantly, by 17.28% YoY to NGN82.84bn from NGN70.63bn as the effective tax rate declined to 10.81% from 22.67% (FY2014: NGN10.05bn; FY2013: NGN20.71bn). Although we expected a growth in earnings for FY2014, the effects of FX volatility resulted in a more marked increase than expected. Given that we do not expect this level of volatility in the FX market in 2015, we are expecting a YoY decline in NII, which might possibly result in a comparative earnings decline by FY2015, barring any unforeseen market conditions which might allow the Holdco to boost income generation. We need to see more; HOLD : The Holdco declared a dividend of N0.10 per share, and a bonus issue of 1 share for every 10 shares owned, implying a total distribution of NGN1.05 per share and a dividend yield of 11.40% on the declaration date. Although, we acknowledge the Holdco s good earnings performance, our expectations going forward are tempered by the fact that the volatility which allowed for this performance has been curbed by recent CBN FX market directives. And so, while we expect slower growth on some expense lines (interest expenses, OPEX), we do not expect that this will be enough to offset the drop in gross earnings due to the normalized NII. FBNH s earnings implies a P/E of 3.74x and 0.59x P/BV relative to the sector s estimates of 5.13x P/E and 0.73x P/BV. Based on a blend of Equity DCF, DDM, RIM and price multiples valuations we arrived at a fair price of NGN9.96. FY2014 EARNINGS UPDATE April 2015 Target Price: Rating: HOLD Relative Metrics Current price 9.51 P/E 3.74x P/B 0.59x Forward P/E 3.94x Div. Yield (FY13) 7.77% 52-Wk av. Vol (mn) 35.99 Fundamental Metrics EPS 2.06 BVPS 15.13 Net Margin 16.72% ROAE 13.92% ROAA 1.67% Cost to Income 64.30% NPL Ratio 2.90% Mkt. Cap (N bn) 299.56 Key Price Metrics Today Return 0.11% WtD Return 9.31% MtD Return 9.31% QtD Return 9.31% YtD Return 8.07% 52-Week Return -23.00% 52-Week Hi 16.52 52-Week Lo 6.35 Year Hi 9.57 Year Lo 6.37 Beta 1.01 14D-RSI 61.52 Jolomi Odonghanro jolomiodonghanro@meristemng.com 1 P a g e NGN9.96
Financial Highlights (NGN billion) FIRST BANK OF NIGERIA PLC FY2014 Result Profit & Loss Account FY2014 FY2013 y/y Growth 2015.f Gross Earnings 480.6 396.2 21.30% 435.72 Interest Income 362.58 323.62 12.04% 349.97 Interest Expense 118.73 93.51 26.97% 150.88 Loan Loss Expense 25.92 20.31 27.65% 27.16 Net Interest income after impairment 243.85 230.12 5.97% 171.94 Non-Interest Income 110.18 65.53 68.13% 78.51 Operating Income 354.03 295.65 19.75% 250.45 OPEX 235.8 185.01 27.46% 183.22 PBT 92.88 91.34 1.69% 95.11 PAT 82.84 70.63 17.28% 76.08 Balance Sheet FY2014 FY2013 FY2015.f Cash and bank balances with central bank 698.1 594.23 17.48% 674.2 Loans and advances to banks 460.91 430.59 7.04% 449.47 Loans and advances to customers 2,178.98 1,769.13 23.17% 2,505.83 Financial Assets 711.64 824.06-13.64% 898.93 Fixed Assets 88.21 81.3 8.50% 89.89 Other Assets 204.82 169.69 20.71% 375.75 Total Assets 4342.67 3869 12.24% 4,994.07 Deposits from banks 171.15 82.03 108.64% 86.95 Deposit from Customers 3,050.85 2,929.08 4.16% 3,655.23 Borrowings 369.71 126.3 192.72% 373.13 Other Liabilities 228.07 259.81-12.22% 280.14 Total Liabilities 3,819.78 3,397.22 12.44% 4,395.45 Shareholders' fund 522.89 471.78 10.83% 598.62 Per share data FBNH Current Price 9.51 EPS 2.54 BVPS 16.02 Price multiples/ratios Corporate Actions Shares outstanding 32.63 Proposed cash dividend 10 kobo/share P/E 3.74x Proposed bonus 1 for 10 P/BV 0.59x Cash Dividend yield 1.05% ROAE 16.66% Total Dividend yield 11.04% ROAA 2.02% Pay-out ratio 3.94% Net Interest Margin 7.60% Qualification date To be advised Cost of Funds 3.50% Closure date To be advised Cost to Income 66.70% Payment date To be advised Loan to Deposit Ratio 72.80% AGM Venue To be advised Net Margin 17.24% 2 P a g e
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Movements in Price Target Company Name: First Bank of Nigeria Holdco. Date Price (N) Previous Target Price(N) New Target Price (N) Previous Recommendation 30/10/2014 11.58 16.04 11.04 HOLD HOLD 09/01/2015 7.99 11.04 9.45 HOLD HOLD 10/04/2015 9.51 9.45 9.96 HOLD HOLD New Recommendation Company disclosures Meristem or the analyst(s) responsible for the coverage may have financial or beneficial interest in securities or related investments discussed in this report, which could, unintentionally, affect the objectivity of this report. Material interests, which Meristem or the analyst(s) have with companies or in securities discussed in this report, are disclosed below: Company First Bank of Nigeria Holdco. Disclosure a. The analyst(s) hold(s) personal positions (directly or indirectly) in a class of the common equity securities of the company. b. The analyst responsible for this report, as indicated on the front page, is a board member, officer or director of the company c. Meristem beneficially owns 1% or more of the equity securities of the company d. Meristem has been the lead manager or co-lead manager of any publicly disclosed offer of securities of the company over the past 12 months. e. Meristem beneficially holds a major interest in the debt of the company f. Meristem has received compensation for investment banking activities from the company within the last 12 months g. Meristem intends to seek, or anticipates receipt of compensation for investment banking services from the company in the next 3 months h. The content of this research report has been communicated with the company, following which this research has been materially amended before its distribution i. The company is a client of the stock broking division of the Meristem group. j. The company is a client of the investment banking division of the Meristem group. k. The company owns more than 5% of the issued share capital of Meristem l. Meristem has other financial or other material interest in the company. Conflict of Interest It is the policy of Meristem Securities Limited and its subsidiaries and affiliates (Individually and collectively referred to as Meristem ) that research analysts may not be involved in activities that suggest that they are representing the interests of Meristem in a way likely to appear to be inconsistent with providing independent investment research. In addition, research analysts reporting lines are structured so as to avoid any conflict of interests. For example, research analysts are not subject to the supervision or control of anyone in Meristem s Investment Banking or Sales and trading departments. However, such sales and trading departments may trade, as principal, on the basis of the 4 P a g e
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