December 6, 2018/FBNQuest Research
Single digit increase to our 2019E EPS forecast and price target
FCMB’s Group’s (FCMB) Q3 2018 pre-tax earnings came in well ahead of our forecast. The positive surprise was driven by revaluation gains which boosted the non-interest income line. On its conference call, management noted that the fx gain was due to the adoption of an fx (NIFEX) translation rate of c.N361/US$, compared with c.N330/US$ used for Q4 2017.
Following the results, we have increased our non-interest income and PBT forecasts for 2018E by around 19% and 23% respectively. However, given that we are not modelling a repeat of the gains going forward, the upward revisions to our 2019E forecasts for both lines are relatively modest at around 3% and 8% respectively. Our new price target of N3.25 is also around 8% higher than previous.
On our new forecasts, we now expect FCMB to deliver a 2018E PBT growth of 77% y/y to N20.3bn, translating to a 2018E ROAE of 12.4%, its best performance since 2014E. At current levels, our new price target implies a potential upside of c.117% from current levels.
When combined with the 14% yield implied by our 2018E dividend forecast of N0.21, we see a total return of c.130.8% by end 2019E. Consequently, we upgrade our recommendation on the shares to Outperform from Neutral.
Q3 PAT up 394% y/y, driven by fx revaluation gains &OCI
In Q3 2018, FCMB delivered triple digit (+154% y/y) PBT growth to N7.7bn. The marked earnings growth was mainly driven by a 183% y/y growth in non-interest income, on the back of fx revaluation gains of N9.0bn in Q3 2018 vs. N428m for the comparable quarter of 2017.
In contrast to the stellar growth in non-interest income, funding income was up by low single digits y/y. As such, pre-provision profits grew by 48% y/y. Although loan loss provisions were up by 172% y/y, the growth in pre-provision profits was more significant. Further down the P&L, the growth on the PAT line accelerated by 394% y/y to N13.2bn, thanks to a positive result of N7.6bn in other comprehensive income (OCI).
The sequential trends mirrored those observed on a y/y basis. PBT and PAT grew by 99% q/q and 446% q/q respectively due to the boost from fx gains and OCI. Compared with our forecasts, PBT and PAT beat by 86% and 283% respectively due to positive surprises in non-interest income and OCI.