Fidelity Bank Posts Lower Total Comprehensive Income against Comparable Period in 2017 – Half Year Ended 30th June, 2018

Coy: Fidelity Bank Plc

Rating: Buy

Current Market Price: N1.70

Year High: N4.33

Year Low: N1.70

Fair Value: N3.47

By: Jeariogbe Tunde Segun (Equity Analyst)

Key Financials

This analysis viewed the half year financial statistics of Fidelity Bank Plc by comparing same with the figures released for the similar period in 2017.
The just released result arrived a month late compared to that of 2017 (29^th August). It was observed that the management of Fidelity had never released its half year results earlier than 24^th July since 2014.
Total Comprehensive Income (TCI) for the period stood at 22.55% below what was reported in the previous half year.
In other words, TCI for the just reported period was N8.514 billion as against the previous N10.993 billion
Thus, as against the estimated N0.41 EPS, Total Comprehensive Income/Share (TCI/Share) is N0.29.
The reduced TCI was due to Net losses on debt instruments at fair value which amounts to N3.432 billion.

Company Figures

Gross Earnings improved by marginal 3.61% over 2017 H1 result. The amount reported as Gross Earnings was N88.917 billion as against N85.821 billion last year
Similarly, Interest Income inched up by 2.50% over the similar period of 2017
Meanwhile, Interest Expenses for the period was N41.989 billion, this is 10.05% above what was reported in 2017 half year statistics
Fees and Commission Income stood at N13.703 billion as against N9.411 billion in 2017
On the other hand, Fees and Commission Expenses maintained close gap at the current N1.759 billion compared to N1.988 billion in 2017 half year financials
Profit before Tax (PBT) reported for the period therefore stood at 27.31% above last year financials. Current PBT s N13.010 billion as against N10.219 billion
Having considered same tax rate as in the previous half year, N11.843 billion was announced as the Profit for the period compared to N9.036 billion in H1-2017
As noted above, Total Comprehensive Income dipped against last year statistics at N8.514 billion as against N10.993
Retained Earnings stemmed down to N31.104 billion from the N32.203 billion posted in 2017 half year statistics
Total Assets grew by 19.78% to N1.567 trillion from N1.308 trillion while Total Liabilities stood at N1.383 trillion against N1.116 trillion
Total Customers’ Deposits for the period is estimated at N927.36 billion compared to the N761.06 billion achieved at the end of 2017 half year business session
Meanwhile Loans and Advances is currently N795.36 billion, this is 3.50% above that of 2017
And Net Assets at the end of the half year financials is N184.16 billion, 4.15% below the N192.33 billion that was announced last year.

Volatility Ratios

Estimated beta value of Fidelity Bank is well above both the market and industrial average beta value. This confirmed the volatility/patronage of its shares on the floor of the exchange
Although almost irrelevant since we analyze a financial institution whose major business is to collect deposit (mostly reported under liability) we estimated Debt to Equity ratio as 112.75% well above the industrial average of 25.31%

Profitability Ratios

Interest Expense to Gross Earnings is presently estimated at 47.22% this is only 6.22% above the 44.46% estimated in 2017 half year result
PBT margin stood at 14.63% as against 11.91% last year, this is 22.88% improvement
Similarly, Profit margin looks up against last year. We have estimated 13.32% margin from Gross Earnings as against the previous estimate of 10.53%
Return on Average Equity is now 6.43% compared to the 4.70% returns achieved in the first six months of 2017
Return on Average Assets differs by 9.42%, moving from 0.69% to 0.76%

Efficiency Ratio

Gross Earnings to Total Assets is estimated at 5.67% this is 13.50% lower than the 6.56% estimated in 2017
Similarly, Gross Earnings to Equity is now 48.28% as against the 44.62% estimated from 2017 half year financial statistics
Financial Leverage is 8.51x as against 6.80x, this is an estimate of the number of times the total assets replicates the equity, in other words the ratio got better
It was also established that 85.71% of the Total Deposit was given out as Loan and Advances during the period under estimate, this is 15.11% lower than the 100.97% given out during the first six months of 2017
Meanwhile, Loan and Advances is 50.74% of the Total Assets this is 13.59% lower than the 58.72% of last half year. This shows a controlled/reduced risk compared to 2017

Investment Ratios

Just as in the company report above, since shares outstanding remained constant during the two periods under consideration, the estimated amount earned per units of Fidelity Bank shares is N0.41, this is 31.06% above the N0.31 earned last year
Due to Net losses on debt instruments at fair value experienced during the reported period, the Total Comprehensive Income per share for the period is N0.29 as against N0.38 last half year, this is 22.55% drop
PE/Ratio for the period is 2.30x as against 2.50x estimated last year.
As we speak the Book Value of Fidelity Bank is N6.36 fairly same as N6.64 last year. This confirmed that the company is currently undervalued.
Also confirming this fact is the Price to Book Value that is estimated below unity, proving the low price against the book value
Operating Expenses for the period is currently 47.22%, this is 6.22% below the 44.46% of 2017 half year financials.

Valuation

Our attempt to place a fair value on Fidelity Bank took us through several valuation methods after which we settled for the constant perpetual dividend growth rate. We limited our income consideration to the Total Comprehensive Income, since that is the true financial state of the bank and not the Profit after Tax. We also considered the last dividend of 11k by the bank in its financial statement for the year ended 31^st December, 2017 along other valuations indices. Thus we arrived at a Fair Value of N3.47. This value is twice the current market price and 83.28% below the estimated Book Value of Fidelity Bank. We have Rated Fidelity share price as Buy.