Fidelity Bank: What tickle for the bulls?

Fidelity Bank Plc is leading capital appreciation in the banking sector. Capital Market Editor Taofik Salako reports that the latest audited results of the bank appear exciting to investors.

Fidelity Bank Plc recorded the highest capital appreciation in the banking sector last week. With a gain of 6.47 per cent, the bank was the only banking stock within the top 10 gainers at the stock market in the immediate past week.

Against a negative average decline of 1.17 per cent by the benchmark index for quoted equities and a decline of 0.65 per cent by the banking sector index, Fidelity Bank played a major contrarian stock during the week. The bank sustained its bullish run on Monday, closing the first trading session of this week with a gain of 0.55 per cent to close at N1.82 per share.

Fidelity Bank had three weeks ago released its audited report and accounts for the six-month period ended June 30, 2018. One of the five banks that go through rigourous process of twice auditing of financials in a year, the audit and the performance during the period appeared to be hedges for the bank against the generally downward trend in the stock market and possible backlashes from the recent liquidation of a bank by the Central Bank of Nigeria (CBN).

Improved results

Key extracts of the audited report and accounts for the first half ended June 30, 2018 showed double-digit growths in key performance indicators, with underlying ratios indicating that the bank is gaining significant traction in its business segments.

Profit before tax rose by 27.3 per cent, from N10.2 billion in first half 2017, to N13 billion in first half 2018. Profit after tax grew by 31 per cent to N11.8 billion in 2018, as against N9.03 billion in comparable period of last year. Gross earnings increased from N85.8 billion in first half of 2017 to N88.9 billion in first half of 2018.

The balance sheet showed increased customer confidence and shareholders’ value. Total assets grew by 13.7 per cent to N1.57 trillion in 2018, as against N1.38 trillion in the comparable period of 2017. Total deposits increased by 19.7 per cent, from N775.3 billion to N927.9 billion.

Fidelity Bank Plc Managing Director Mr. Nnamdi Okonkwo attributed the performance of the bank to the disciplined approach in managing its balance sheet growth and strategic cost containment initiatives.

According to him, the bank’s focused attention on chosen business segments and determined execution of its retail and digital banking strategy provided the linchpin for the sustained overall growth, despite the macroeconomic and regulatory headwinds.

“Gross earnings, net fee and commission income all grew primarily due to the increase in transactional activities. Our digital banking initiative continues to gain traction with almost 40 per cent of our customers now enrolled on our mobile and internet banking products and over 80 per cent of total transactions now done on our digital platforms,” Okonkwo said.

He pointed out that Fidelity Bank’s retail digital banking strategy has continued to positively impact its business as shown in recent years, noting that this was again evident in the first half 2018 results as savings deposits increased by 10.6 per cent to N197.5 billion.

“The bank is on track to achieving a fifth consecutive year of double-digit savings growth. Low cost deposits now account for 73.8 per cent of total deposits,” Okonkwo said.

He added that although total operating expenses grew by 5.7 per cent to N32.7 billion within the period, the bank maintained a relatively steady cost to income ratio of 67.7 per cent when compared with 67.5 per cent recorded in the previous year. This is in spite of the double-digit inflationary environment in Nigeria.

With regulatory ratios of Capital Adequacy Ratio (CAR) at 17 per cent and Liquidity Ratio at 33.2 per cent, well above required thresholds, Okonkwo expressed optimism that the bank is on a strong footing to sustain its improved performance in the second half of the year.

Positive review

Many analysts appeared to agree with the management of the bank. Analysts at Renaissance Securities stated that Fidelity Bank’s share price could rise further on the back of its half-year performance.

“We like the decent eight per cent quarter-on-quarter growth in the bank’s loan book, which was largely driven by the manufacturing, general commerce and transport segments. We find this performance impressive in the light of the tepid growth in the sector,” Renaissance Securities stated.

Analysts noted that deposit growth of 20 per cent within the period was also commendable, although an improved deposit mix would have made further improvement on the performance. Renaissance Securities noted that on a sequential basis, the profit before tax was up, on an impressive 61 per cent on quarter-on-quarter basis, largely driven by much stronger income during the quarter.

The review pointed out that the bank’s non-performing loan ratio remained resilient at 6.1 per cent in first half 2018.

“Cost-to-income ratio  improved to 67.7 per cent in first half 2018, compared to 72.7 per cent in first quarter 2018, albeit marginally higher than 67.5 per cent in full-year 2017. Though the reduction in cost-to-income ratio was driven more by income growth than controlled operating expenses, we like this development given that the bank’s high costs have historically concerned us,” Renaissance Securities stated.

Analysts pointed out that Fidelity Bank’s return on equity (RoE) of 12.2 per cent is the highest it has been since 2008, driven by a combination of higher return on asset (RoA) and leverage.

The first half 2018 performance strengthened the mid-term growth outlook of the bank, sustaining the upward trajectory that saw nearly a double in earnings in the previous year.

Key extracts of the audited report and accounts of Fidelity Bank for the year ended December 31, 2017 had shown that profit after tax rose by 94 per cent to N18.9 billion in 2017, compared with N9.7 billion in 2016. Profit before tax had risen by 83.6 per cent to N20.3 billion in 2017, from N11.0 billion in 2016.

Net interest income had increased by 15.4 per cent to N71.5 billion in 2017, while net operating income rose by 9.9 per cent, from N86.0 billion in 2016 to N78.3 billion in 2017.

Gross earnings grew by 18.3 per cent, from N152.02 billion in 2016, to N179.9 billion in 2017. Total assets increased to N1.379 trillion in 2017 as against N1.298 trillion in 2016. The bank distributed N3.2 billion as cash dividends to shareholders for the 2017 business year, representing a dividend per share of 11 kobo.

Niche markets

With more than four million customers and 240 business offices and various digital banking channels, Fidelity Bank runs full-fledged commercial banking operation with a focus on select niche corporate banking sectors as well as Micro Small and Medium Enterprises (MSMEs).

It had recently won accolades as the Best SME Friendly Bank, Best in Mobile Banking and the Most Improved Corporate and Investment Bank, among others.

Aligning itself with Nigeria’s strategic economic growth agenda, Fidelity Bank has shown considerable supports for ongoing efforts aimed at strengthening Nigeria’s agricultural value-chain by providing innovative funding schemes and technical advisory services to this sector and general commercial agribusiness projects.

The bank has extended loans valued at more than N60 billion to SMEs in Nigeria, in line with its commitment to help unlock SMEs’ potential as major foreign exchange earners and catalysts for national economic diversification and growth.

Addressing shareholders, Fidelity Bank Plc Chairman Mr Ernest Ebi, said the bank is on a strong pedestal to sustain growth and make better returns to shareholders.

According to him, the bank has been strategically positioned to successfully navigate the business environment and make better returns to shareholders in 2018.

He said the performance of the bank underlined the resilience of its growth strategy, noting that expected improvement in the operating environment in 2018 should translate into improved performance for the bank.

Okonkwo said the bank would continue to focus on enhancing its systems and processes to continuously improve service delivery and place itself in a better position to take advantage of emerging opportunities in the economy.

He said that the bank would deepen its cost optimisation initiatives to reduce operating expenses and cost-to-service ratios as part of efforts to retain greater values for shareholders.

“Clearly, our success in 2017 financial year has set a strong pedestal for sustained growth in revenue. We are optimistic about a favourable operating environment and we look forward to delivering decent set of numbers at the end of 2018 financial year, “ Okonkwo said.

With earnings rising and a strong first-half 2018 performance, many analysts see Fidelity Bank with more competitive returns to shareholders. The immediate dividend payout of 11 kobo per share represented a dividend yield of 6.04 per cent at the opening price of N1.82 per share at the Nigerian Stock Exchange (NSE), which is the highest in the enlarged financial services industry.

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