September 30, 2021/CSL Research
FBN Holdings (FBNH) Interest Income in the first half of 2021 declined significantly (down 22.4% y/y) due to lower yields on interest-earning assets relative to H1 2020. However, growth in Non-Interest Revenue, reduced funding costs, lower Impairment Charge and moderate Opex growth resulted in a moderate y/y Pre-tax profit growth. A loss of N44m from discontinued operations, however, in H1 2021 compared with a profit of N13.8bn in H1 2020 led to a 23.1% y/y decline in profit for the period. H1 2021 annualised RoAE was down to 9.9% compared with 14.5% in June 2020.
The bank’s asset quality ratios remain at acceptable levels with Cost of Risk (COR) moderating to 2.0% in H1 2021 compared with 3.1% in H1 2020. NPL ratio of 7.2%, is down from 8.8% in June 2020. The highest percentage of the bank’s NPL came from the Agriculture and General commerce sectors. We forecast FY 2021 NPL ratio of 7.0% and cost of risk of 2.5%. We note, however, that the bank’s coverage ratio, including statutory reserve, remains relatively low at 53.3%. The group’s management guides to 60% coverage ratio by the end of the financial year.
The bank reports 15.7% Basel 2 CAR for First Bank Nigeria almost at par with the regulatory limit of 15.0%. The bank’s management noted that with H1 earnings capitalised, the bank’s CAR will come to 16.8%. Without significant deterioration in asset quality, which we believe is unlikely in the near term, we believe the bank can remain above water. The bank’s management announced a strategic 3-year plan to take ROAE to over 20%, cost to income ratio to sub 58%, COR to less than 1% and NPL ratio to less than 5%.
We have changed our estimate and the overall effect is a slight change to our price target, which increases to N11.26/s from N10.98/s previously and we retain a Buy recommendation. At 0.38x price-to-book (P/BV), the group’s valuation remains compelling.
|H1 2021 Nm|
Source: Company, CSL Research.