FBNH 2019 Performance Report; Improved Earnings, High NPL, 38k Cash Div

Coy: First Bank Holdings Plc (FBNH)
Rating: Buy
Current Market Price: N4.70

Non-Performing Loan Ratio: 14.37%

Loan to Deposit Ratio: 53.43%
Year High: N7.70
Year Low: N3.60
Fair Value: N8.22
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

• This report carefully observed the full year financial performance indices of First Bank Holdings Plc as recently released by the management, we compared same with similar numbers released at the end of 2018 financial year to establish growth, projections and make recommendations accordingly
• Please understand that at the end of the 2019 business, session, the management of FBNH proposed 38k cash dividend for the year
• The 38k dividend is same as 18.48% pay-out from the N2.06 earned through the year. Meanwhile, it yielded 9.50% of the current market price of FBNH share price on the floor of the exchange on the day the result was released to the investing public
• Closure date for the dividend is between 21^st – 22^nd April, 2020 while the qualification and payment dates are respectively 20^th & 28^th April, 2020.
• The Bank did not meet up with the regulatory standard for Loan to Debt Ratio-LDR as it only dispensed 53.43% of deposits received as loans, this is lower than the regulatory 65%

Company figures

• Gross Earnings through the year is valued at N609.754 billion, same as 3.26% above the N590.518 billion posted in its 2018 full year earnings
• Interest Income improved by marginal 1.61% to stand at N444.556 billion against N435.563 billion in the corresponding year
• Interest Expenses is currently valued at N152.342 billion above the N150.24 billion posted at the end of 2018 financial year
• Operating Expenses is estimated at N280.531 billion, higher than N243.687 billion used through 2018 financial year
• Profit before Tax is estimated at N83.595 billion versus N63.853 billion in the comparable year (2018)
• Having taken care of the Tax Expense, the management of FBNH posted N73.812 billion as profit for the year, this is 26.59% higher than the N58.309 billion earned in 2018

• At the end of 2019 business session, the bank’s Total Assets is valued at N6.20 trillion, same as 11.40% above the N5.56 trillion stated in its 2018 financial year end document
• Total Liabilities equally stood above comparable year by 9.97% to stand at N5.42 trillion versus N5.03 trillion in 2018
• Net Assets is valued at N661.12 billion as against N528.94 billion posted at the end of the corresponding year
• Total Deposit received through 2019 is estimated at N4.88 trillion, this is 15.21% above N4.23 trillion in 2018
• Total Loans and Advances stated in the 2019 financial documents is N2.60 trillion, this is only 2.90% higher than the N2.53 trillion posted in 2018
• See the above table for details

Financial Strength/Solvency Ratios

• Debt Ratio which compared Total Assets to Total Liabilities stood at 0.89x or 89%, implying that the Total Liabilities is approximately 89% of Total Assets. Please understand that Total Liabilities is inclusive of Total Deposits for the year
• Total Debt to Equity for the year stood at 8.38x, same as 12.02% below the 9.53x estimated in 2018. This implies that the company used 8.38 times of its equity through the period (note that financial institutions used more debt, since collection of deposits is their major business)
• Equity Ratio which compared Equity to Total Assets stood at 0.11x as against 0.09x implying that the reported Equity value at the end of the period is 11% of FBNH’s Total Assets, this is a 12.20% growth over the previous year’s estimate
• Estimated Beta value for FBNH as at the time this report was compiled stood at 1.82 this stood above market beta and also above the industrial average as at the time this report was compiled

Profitability Ratios

• EBITDA Margin is estimated at 52.98%, this is a marginal growth above the estimated 52.24% in the corresponding year
• Pre-Tax Margin improved by 26.79% to stand at 13.71% against the 10.81% estimated at the end of 2018 financial year
• Interest Expenses to Gross Earnings dropped by marginal 1.80% to 24.98% against the previously estimated 25.44%
• Return on Average Equity through the year was 11.16% against 11.02% in 2018
• See below table for detailed profitability ratios and comparison

Efficiency Ratios

• Operating Expenses through the period stood above the corresponding year by 11.49% having moved from 41.27% to 46.01%
• Gross Earnings is same as 9.83% of the Total Assets valuation at the end of the year, this is 7.31% below the 10.60% estimated in 2018
• It was equally established that 53.43% of the total deposits for the period was given out a loan, this is 10.69% below the 59.82% of deposit given out as loan and advances through 2018, and lower than the regulatory standard of 65%

Investment/Valuation Ratios

• At the end of the year, N2.06 was earned on each unit of FBNH shares. This higher than the N1.62 earned per share at the end of 2018 business session
• The price of FBNH at the time this report was made available to the investing public can replicate the earnings per share 1.95 times (P/E-Ratio=1.95x) this is lower than the 4.62x estimated in 2018.
• The said earnings per share is a 51.41% yield of the price of FBNH on the floor of the exchange when the result was released to the investing public, this is a better yield when compared to 21.66% yield of 2018. Please understand that towards earnings release, price dropped heavily due to reaction to COVID-19 spread
• Estimated Book Value per shares of FBNH is currently N18.42, same as 24.99% above the N14.74 of 2018
• Thus Price to Book Value stood at 0.22x as against 0.51x. This simply implies that the stock is currently selling below its book value on the floor of the exchange

Valuation

While trying to place a fair value on each unit of FBN-Holdings shares, we considered average of two valuation models. FCFE Stable Growth Model valued the stock at N11.02 while H-Model placed the price at N5.42. We therefore arrived at an average value of N8.22 for each unit of its listed shares, thus, we Rated FBNH shares a BUY.