Higher LDR, NPL-Ratio, Attractive Investment Ratios: Fidelity Bank Builds Half Year Earnings over Comparable Period

Coy: Fidelity Bank Plc (FIDELITYBK)
Rating: Buy
Current Market Price: N1.66
NPL RATIO (Q2-2019): 5.39%
Year High: N2.90
Year Low: N1.40
Fair Value: N2.69
By: Jeariogbe Tunde Segun (Equity Analyst)

Introduction

• This report observed the financial performance statistics of Fidelity Bank Plc for the first six months of 2019, compared same with similar quarter in 2018 and establish growth accordingly.
• We also observed few valuation metrics, and achieved conservative projections using the full year performance indices for the year ended 31^st December, 2019.
• Generally, the result is impressive when put side by side with figures released in the similar quarter of 2018
• Non-performing loan for the period increased from the 4.93% estimated in first quarter of 2019 to 5.39% at the end of the first half of the year, please note that Fidelity Bank NPL Ratio was 4.76% in 2018 half year
• Performance indices stood at appreciable gap from the comparable periods, while the Total Comprehensive Income was boosted largely by improved revaluation of Equity Investments
• See below for other financial indices comparison

Company figures

• Gross Earnings posted for the period stood at N103.65 billion up from the N92.29 billion posted at the end of 2018 half year business session
• Interest Income posted stood at N85.83 billion as against the N80.04 billion in 2018 half year
• Interest Expenses was estimated at N48.93 billion, same as 16.53% over the reported N41.98 billion in 2018
• Net Interest Income was estimated at N42.37 billion as against the N35.46 billion achieved last year
• Operating Expenses stood at 19.93% above the comparable period, as it is currently valued for N35.79 billion against N29.84 billion
• Profit before Tax stood at N15.05 billion same as 15.09% above the N13.01 billion posted last year
• Having considered the Tax Expense for the period, a total of N13.68 billion was reported as Profit for the period, this is 15.55% above the N11.84 billion earned at the end of the first six months in 2018
• As noted above, due to improved revaluation of equity investment over the comparable period, Total Comprehensive Income soared at the current estimate of N24.33 billion versus N8.51 billion

• Total Assets is currently valued at N1.994 trillion, same as 23.77% above the corresponding period valuation of N1.56 trillion
• Similarly, due to improved deposit, Total Liabilities posted for the period was N1.72 trillion against N1.38 trillion in 2018 half year business session
• Net Assets is therefore estimated to worth N215.56 billion, this is 17.05% above the N184.16 billion estimated last year
• Retained Earnings remained positive at N43.62 billion against N31.10 billion last year
• Total Deposit achieved at the end of the period is same as N1.09 trillion, higher than the N927.93 billion deposit reported in 2018 half year
• Total Loans and Advances stood at N999.31 billion against N849.88 billion

Financial Strength/Solvency Ratios

• Debt Ratio which compared both Total Assets to Total Liabilities stood at 0.89x or 89%, implying that the Total Liabilities is 89% of Total Assets. Please understand that Total Liabilities is inclusive of Total Deposits for the period
• Total Debt to Equity for the quarter stood at 8.00x, same as 6.50% above the 7.51x estimated in 2018. This implies that the company used Debt equivalent to 8.00 times of its equity through the period
• Equity Ratio which compared Equity to Total Assets stood at 0.11x as against 0.12x implying that the reported Equity at the end of the period is 11% of Total Assets.
• Estimated Beta value for Fidelity Bank as at the time this report was compiled stood at 1.56 this stood above market beta the industrial average of 1.34

Profitability Ratios

• Pre-Tax Margin improved by marginal 3.01% to 14.52% against the 14.10% estimated at the end of 2018 half year
• Effective Tax Rate is relatively stable at 9.08% in the current quarter as against the 8.97% in the corresponding quarter of 20199
• Interest Expenses to Gross Earnings inched by 3.76% to 47.21% against the previously estimated 45.49%
• Return on Average Equity through the first six months of 2019 was 6.35% against 6.43% estimated from 2018 numbers
• See below table for detailed profitability ratios and comparison

Efficiency Ratios

• Operating Expenses figure posted at the end of the period is estimated to be 34.53% of the estimated Gross Earnings, this is below the 32.33% achieved in 2018 half year financials. Please note that this implies marginal adjustment in rate of expenses
• Gross Earnings estimated from the bank financials is same as 5.34% (2018Q2-5.89%) of the Total Assets value posted for the period under analysis
• Total Loan and Advances posted for the quarter is 91.09% of Total Deposit, this is 0.54% downward adjustment over the 91.59% estimate in 2018.

Investment/Valuation Ratios

• The profit earned per each units of Fidelity Bank shares is estimated at N0.47 this is 15.55% above the N0.41 earned in similar quarter of 2018
• Total Comprehensive Income is estimated at N0.84, this is 185.85% above the N0.29 TCI/share achieved in 2018.
• P/E-Ratio adjusted for half year dropped to 0.88x from 1.04x, This can also be seen as reduced investment period
• The said earnings per share is a yielded 28.45% of the price of each units of Fidelity Bank’s shares on the floor of the exchange on the day the result was unveiled to the investing public through the exchange
• Estimated value of each units of Fidelity Bank shares in its book is N7.44, this is 17.05% improvement over the previous estimate of N6.36
• Confirming the academic under-priced stand of Fidelity Bank’s shares on the floor of the exchange is the Price to Book Value estimate that stood far below unity

Valuation

Exploring our blend of valuation tools, we conservatively valued each units of Fidelity Bank shares at N2.69, thus, we rated it a Buy.