Strong Earnings Support Price Rally In FBN Holdings

FBN Holdings Plc formerly as First Bank of Nigeria Plc until 2010 when adopted its present name, was incorporated in the country precisely on October 14, 2010, following the business reorganisation of the First Bank Group into a holding company structure. The holding Company was listed on the Nigerian Stock Exchange on 26 November 2012. A peep into history shows that the bank remains one of the Nigeria's oldest financial institutions. Founded in 1894 as Bank of British West Africa, it was listed on the Nigeria Stock Exchange in 1971.

FBN Holdings Plc is the most diversified financial services group in Nigeria today, with affiliates offering a broad range of products and services across merchant banking commercial banking, investment banking, insurance, documentation of company’s records, microfinance and mortgage, among others.  FBN Holdings, employing more than 8,500 staff, has over 10 million customer accounts, which it services through about 807 business locations and over 2,100 Automated Teller Machines. The FBN Holdings Group boasts of an excellent corporate governance structure underpinned by strong institutional processes, systems and controls. FBN Holdings Plc. is structured under business groups such as: Commercial Banking, Investment Banking and Asset Management, Insurance, and Other Financial Services.

The headwind in the industry for 2014 was obvious in First Bank Holdings, despite its robust assets, profitability ratios and risk management strategies. The company’s share price suffered a significant decline. It however enjoyed strong investors’ patronage as many took the opportunity of the low prices to increase their position, while others sold to cut their loss for the period, following which it eventually closed lower than the opening price. Performance indices stand green and tall,with both the top and bottom lines closing positive and above the figures for comparable periods. The stock is fairly valued at N20 with huge margin of safety, as the company’s book value continued to inched up.

FBNH
Share Holding Structure
Govt. Related Holdings	1.95%
Foreign Institutional	21.68%
Domestic Institutional	26.23%
Retail	50.14%
Other Statistics
Shares Outstanding (MN)	35,895,292,792
Opening Price (2014)	N16.18
Closing Price (2014)	N8.80
Closing Price as June 19, 2015	N8.41
Date Listed	26 Nov. 2012
Year End	Dec. 31st

2014 Performance Analysis

The board and management team have seemingly posted positive numbers but failed to reposition and restore the financial group to its initial state in the industry and attune the hearts of the investing public, following which peers referred to as new generation banks have gone ahead in such areas as performance and reward for investors.The group’s immense assets, experienced and high level professionals running the various subsidies have not really boosted and reflected on its performance as clearly revealed in the released financials for 2012, 2013 and 2014. Its activities received a boost as all figures were green and tall as against those of comparable periods, despite the bank’s high exposure to financing oil business. Investors, on the other hand, were not blind to the mild performances hitting the market from the group, which depressedFBN Holdings’ share price, added to the pre-election pressure through the year and post-election effect as is currently prevailing on the stock and the market at large. The company’s book value has grown to N16.02 from N14.46 achieved in 2013. Investors’ confidence complimented its price as valuation tools placed the bank's stock at N20 each, representing a 137.81 per cent discount to its present market value of N8.41.

Five Years Financial Figures of  FBNH Plc
Company Figures
	2014		2013		2012		2011		2010
Gross Income	480,600,000,000		417,127,000,000		353,099,000,000		296,329,000,000		232,079,000,000
Profit After Tax	82,839,000,000		70,631,000,000		76,801,000,000		44,785,000,000		29,177,000,000
Net Assets	522,777,000,000		471,777,000,000		441,315,000,000		365,485,000,000		340,626,000,000
Full Dividend	0.10		1.10		1.00		0.80		0.60
Bonus	1:10
Estimated Ratios
EPS	2.54	2.16		2.35		1.37		0.89
PE/RATIO	3.63	5.96		7.22		4.94		16.31
E/YIELD	27.56	16.79		13.84		20.24		6.13
BOOK VALUE	16.02	14.46		13.52		11.20		10.44
ROCE	16	15		17		12		9
PROFIT MARGIN	17.24	16.93		21.75		15.11		12.57
YEAR END	December	December		December		December		December

Five-Year Performance Analysis

Taking a critical look at the numbers posted by FBN Holdings for the past five years,, and knowing that the entity is just three years with two  years of the old first bank, the group has  grown its gross income on a year-on-year basis from N232.08 billion in 2010 to N480.60 billion in 2014. Within the period under review the company had grown its income on the average by 21.41 per cent. The relative jumpin income in 2012 and 2014 resulted from the total infusion of the performance of all its subsidiaries. Regardless of the improvement in the company’s gross earnings, it is glaring that its profit margin for the period was undulating to reflect the high cost of operation and management’s ability to control the budget.

The holding status of the company may have impacted the financial institution’s profit line, but it is yet to reflect on its share price on the floor of the exchange. Rather, it has kept its price performance below market expectation for a long time now. Although noteworthy is the several unfavourable regulations in the sector overthe past two years. But the similarities in the chart pattern is a pointer that regulations shape performance and call for attention at any time, for investors to note when taking  investment  decisions to position in banking equities.

The sustained dividend payout of the company is commendable, considering the high Cash Reserve Ratio (CRR) of 75 per cent for public sector and 20 percent for private sector funds for almost two years. The ratios were recently harmonised to 31 per cent by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) for both sectors at its third bi-monthly meeting for the year. The earnings of FBN Holdings accounted for 27.58 per cent of the market price as at the released date. Consequently, the period for return on investment was reduced to 3.63x as earnings were looking up from 16.31x in just years as shown in the table above.

As in other key financial indices, Net Assets builds up on a year-on-yearbasis for the oldest financial institution with strong assets base and customers. This is correspondingly responded to by the estimated Book Value that grew to currently stand at N16.02, which is above the market value of N8.41.

Estimated Performance Ratios

The company’s earnings powers for the five-year period increased as reflected on its earnings per share despite the relative large share in issue which did not weaken the EPS for the period under review. The amount earned per share increased from 89 kobo in 2010 to 254 kobo in 2014. The improved earnings within the period has reduced investors waiting period to 3.63x at the market value as released date, from high of 16.31 times in 2010.

Book value for the period as mentioned earlier has grown from N10.44 in 2010 to N16.02, which gives investors high margin of safety, considering the market price.  Other performance ratios are looking up and becoming interesting, especially the earnings yield, return on equity, profit margin, price to sales and others.
On the strength of the figures posted and consistent dividend for the past five years, regardless of the low cash dividend of 10 kobo and script dividend of one ordinary share for every 10 held which is equivalent to N1.10 paid in 2013, the stock is fairly valued at N20.

CURRENT 2015 RESULT

The holding company’s first quarter result for the period ended March 31, 2015 was made available to the market, earlier than the release date of 2014, in compliance with its post-listing requirement. The numbers revealed mild performance as its top and bottom lines pointed northward. Gross earnings remained robust, compared with that of the corresponding period by 22.54 per cent from N103.48 billion in 2014 to N126.80 billion. Profitability for the period was up marginally at 4.86percent to N22.60 billion from N21.56 billion in 2014.  The bank's cost of operation for the period hindered its profit, as reflected in the profit margin for the quarter, with high provision for non-performing loan rising, taxation and other expenses.Net assets jumped to N542.53 billion from N522.89 billion last year. Earnings per share for the period went up to 69 kobo from 66 kobo in 2014.

The 69 kobo EPS for first quarter is a replica of the price in 3.79x, which is lower than the 5.28x recorded last year. The first quarter book value for the period stood at N16.63. The drop in profit margin compared to last year’s is an evidence of the increase in cost centres, just as the full-year results indicates high cost of operation that calls for management’s attention. The low payout of the company for 2014 was for the institution to retain more earnings to grow the business, rather than just running to the market for everything. Theharmonisation of the CRR by the CBN is expected to boost the bank’s liquidity andability to create more money, leading to high earnings at the end of the day. The market expects the company’s second quarter earnings report in July.

FBNH
FIRST QUARTER
COY	2015	2014	% Chg
	(N)	(N)
Date Released	April 24, 2015	April 29, 2014,
Turnover	126,798,000,000	103,477,000,000	22.54
Profit After Tax	22,603,000,000	21,555,000,000	4.86
Shareholders' Fund	542,529,000,000	522,890,000,000	3.76
ESTIMATED RATIOS
Earnings Per Share	0.69	0.66	4.55
PE Ratio	3.79	5.28	-28.22
Earnings Yield	6.60	4.73	39.54
Book Value	16.63	16.02	3.81
ROE	4.17	4.12	1.21
Profit Margin	17.83	20.83	-14.40

FBN Holdings Technical View.

The stock is currently trading below its 50-day moving average, touching the lower line of its bullish channel signaling that reversal is imminent but any breakdown below the lower green line will lead to a lower support level at N7.55.  Traders and Investors are to position right away as the stock is currently trading at a discount and the expected improvement in liquidity for the sector would further boost performance in the near future.  The stock has formed a bullish channel and its financials are expected in the market in July.

Valuation

Looking at the price to earnings ratio  and book value of the stock, it looks very attractive at the current market value, with the PE ratio for full-year 2014 and first quarter 2015 standing at 3.63x and 3.79x respectively. Meanwhile, the Book Value reveals an underpriced situation. Thus, each unit of FBN Holding is fairly priced at N20.00.

Analyst Opinion/Recommendations

The stock looks good for traders and investors, especially now that the holding structure of the financial institution is changing for good with foreign and domestic institutional investors increasing their stake in the company, thereby reducing price fluctuation to usher in stability in price in no distance time. The new merchant banking licenses is a plus for the company. Price retracement from this low of N8.41 is expected to grow and build first tradable resistance at N9.38 and support level at N8.35. On the other hand, the management needs to concentrate efforts on strategies capable of building performance indices to post better figures in subsequent quarters and years. This will definitely increase investor patronage and thereby drive price to new highs.