FBN HOLDINGS GOOD Q2 EARNINGS TO SUPPORT PRICE

FBNH
Bourse	Nigerian Stock Exchange
Code Name	FBNH
Sub Sector	Banking
Market Classification	Premium Board
Nature of Business	Provision of Banking and Other Financial Services to corporate and Individual customers
Date of Incorporation	August 13th 2012
Date Listed	November 26th 2012
End of Accounting Year	31st December
Website	www.fbnholdings.com
Registrar	FIRST REGISTRARS NIGERIA LIMITED
Share Price (N)	3.45
Earnings per Share	1.00
Intrinsic Value(N)	16.00
Share Outstanding	35,895,292,792
Market Capitalization	123,838,760,132

Brief History

Transforming from the then First Bank Nigeria Plc, FBN Holdings Plc evolved in November 26, 2012 following the Central Bank of Nigeria (CBN) regulation that all financial institutions should divest from non-banking business or adopt a holding company structure.

FBNH is therefore a financial services holding company with subsidiaries engaged in the provision of commercial banking and investment banking services, insurance business, merchant banking and other equity investments, among others. These are grouped into units like Commercial Banking business group, Merchant Banking and Asset Management business group (MBAM), Insurance business group and Other Financial Services business group.

Most Recent Financials

The half-year financial performance for the period ended 30^th June, 2016 is the most current investment metrics of the bank and presents a lower performance when compared to similar period of 2015. Nevertheless, it enjoyed a warm reception from the investing public. Many had expected a woeful performance from the bank before now, due effects of the Naira devaluation and tight regulatory regime that characterised the quarter.

The half year result represents a 14bpts growth in Gross Earnings from N268.07 billion to N268.45 billion. Interest income stemmed down against 2015 by 17.78%, while Interest Expenses was commendably adjusted by 40.97% from last year's comparative period. Profit for the period stood below 2015 figure by 10.50%.

See the table below for details.

FBNH
Financial Positions	2016(Millions)	2015(Millions)	% CGN
Cash&Cash Equiv. with CBN	701,147	727,993	-3.69%
Gross Earnings	268,450	268,076	0.14%
Interest Income	169,201	205,798	-17.78%
Interest Expenses	43,151	73,102	-40.97%
PBT	45,886	52,086	-11.90%
PAT	35,855	40,061	-10.50%
Total comp Income	38,901	42,368	-8.18%
Total Assets	4,804,237	4,418,189	8.74%
Total Liabilities	4,192,309	3,856,441	8.71%
Total Deposits	3,492,523	3,296,336	5.95%
Loans & Advances	2,836,177	2,514,507	12.79%
Net Assets	611,928	561,748	8.93%

Volatility Ratios

Almost moving at same trend with the market, FBNH at 1.02 beta value is fairly volatile, though below few industrial peers. It will be agreed that the stock at a time was investors’ toast such that almost all traders are sure of some units in their respective portfolios. Total Debt to Equity quite high at 47.39%.

Volatility	FBNH	INDUSTRY
Beta-β	1.02	1.47
Total Debt to Equity	47.39	54.28

Profitability Ratios

Profit before Tax margin to Gross Earnings was 17.09% lower than the 19.43% estimate of last year. Profit Margin on the other hand is estimated at 13.36% against 14.94%. Return on average equity engaged through the six financial months is low at 5.86%. See the table below for details.

Profitability Ratios	2016	2015	%CHG
Interest Expense to Gross Earnings	16.07%	27.27%	-41.05%
PBT Margin	17.09%	19.43%	-12.03%
Profit Margin	13.36%	14.94%	-10.62%
RoAE	5.86%	7.13%	-17.84%

Efficiency Ratio

Measuring the management efficiency in reproducing the holding company's assets during the quarter, the following ratios were tested: Gross Earnings to Assets reduced to 5.59% from 6.07%, Gross Earnings to Equity equally inched below similar period’s estimate by 8.07% and Equity multiplier was estimated at 12.74% against 12.71% last year. Loan to deposit ratio builds marginally above corresponding year's figure. We are of the opinion that the management should explore more opportunities within its field of operation; efforts should be made to put the company's assets into more rigorous use for enhanced profitability.

Efficiency Ratio	2016	2015	%CHG
Gross Earnings to Total Assets	5.59%	6.07%	-7.91%
Gross Earnings to Equity	43.87%	47.72%	-8.07%
Equity Multiplier	12.74%	12.71%	0.18%
Loan to Deposit	81.21%	76.28%	6.46%

Investment Ratios

Despite the deteriorating macro-economic fundamentals and dwindling monetary policy frameworkthat characterised the financial institution during the half year 2016, FBNH managed to achieve N1.00 dividend, even if this is 10.50% below last year earnings, it is a welcome development.

Total comprehensive income per shares stood at N1.08 as against the N1.18 estimate in the previous year. The EPS yielded 28.95% of the current market price, this is above the 14.31% yield last year (please note that the high yield is largely due to the large price difference within the two periods compared). The low P/E Ratio has a twin impact on FBNH, first it means investors’ preference for its shares has dropped seriously, secondly, it is saying that investment in FBNH can be recovered in less than a year. First Bank book value per share is very attractive at N17.05, far above the market price.

Investment Ratios	2016	2015	%CHG
EPS	1.00	1.12	-10.50%
EPSATCI	1.08	1.18	-8.18%
Earnings Yield	28.95%	14.31%	102.35%
P/E-RATIO	0.86	1.75	-50.58%
P/BV	4.94	2.01	146.28%
BVPS	17.05	15.65	8.93%
Opex Margin	16.07%	27.27%	-41.05%

Three-Year Performance Analysis

FBNH's Gross earnings grew at a slower pace over the past three years observed in this analysis. According to the bank it has exited few unprofitable investments some of which have consistently impacted its figures negatively. Perhaps, this is a contributing factor to the fair 2016 half year financials it posted. Interest Income on the other hand increased by 12.04% from 2013 to 2014, while the growth reduced to 9.27% within 2014 to 2015. Profit for the period on the other hand dropped at a faster rate within the observed years. See the below table for details.

FBNH THREE YEARS FIANNCIALS FIGURES
FINANCIAL YEAR	2015(Mill)	%chg	2014(Mill)	%chg	2013
Price	3.39	- 63.19	9.21	- 43.25	16.23
GROSS EARNINGS	505,190	4.99	481,174	21.22	396,959
INTEREST INCOME	396,190	9.27	362,579	12.04	323,62
INTEREST EXPENSES	131,167	10.48	118,725	26.97	93,506
OPEX	206,627	- 7.36	223,043	28.11	174,103
PBT	21,512	- 76.88	93,056	1.88	91,337
TAX	6,364	-  36.65	10,045	- 51.49	20,706
PAT	15,148	- 81.97	84,011	18.94	70,631
TOTAL COMP INCOME	55,912	-  35.43	86,588	40.75	61,519
CASH&CASH EQUIV	715,871	2.55	698,104	17.48	594,234
TOTAL ASSET	4,166,189	- 4.09	4,343,737	12.27	3,869,001
TOTAL LIABILITIES	3,587,389	-  6.08	3,819,675	12.44	3,397,224
NET ASSETS	578,800	10.44	524,062	11.08	471,777
DEPOSIT FROM BANKS	144,652	-  15.48	171,151	108.64	82,032
DEPOSIT FROM CUSTOMERS	2,970,922	-  2.62	3,050,853	4.16	2,929,081
TOTAL LOANS & ADVANCES	2,203,040	- 16.55	2,639,897	49.22	1,769,130
DIVIDEND	0.15	50.00	0.10	-  90.91	1.10
BONUS			1FOR10

FBNH THREE YEARS FIANNCIAL RATIOS
ESTIMATED RATIOS
FINANCIAL YEAR	2015	2014	2013
EPS(N)	0.42	2.57	2.16
TCIP/SHARE	1.56	2.65	1.89
PE/RATIO	8.03	3.58	7.50
EARNINGS YIELD	0.12	0.28	0.13
BOOK VALUE/SHARE	16.12	16.06	14.46
PRICE TO BOOK VALUE	0.21	0.57	1.12
PBT MARGIN	0.04	0.19	0.23
PROFIT MARGIN	0.03	0.17	0.18
ROAE	0.03	0.16	0.15
ROAA	0.00	0.02	0.02
EQUITY MULTIPLYER	0.14	0.12	0.12
OPEX TO GROSS EARNINGS	0.41	0.46	0.44
LOAN TO DEPOSITS	0.71	0.82	0.59

Technical view

After the heavy dropwitnessed by the share price of FBNH it has maintained strong attractiveness around N3.00 to N3.30. In other words, anytime the stock plays around this point it is undoubtedly a buy. The trending pattern of the stock is quite attractive and makes it a trading instrument for technical traders with eye for recurring trend. Ability to identify both support and resistance point is ultimate when playing FBNH.

Findings/Recommendations

Indications are that the bank will have to retain good portion of its earnings to meet some regulatory standards (e.g Basel-II/III), this strictly accounted for the low investor appetite for its share price, as most investors are only interested in incentives that accrue to them at the end of the financial year. Nevertheless, a change in position is very necessary to keep the giant financial institution in good competitive advantage within its industry and also to retain depositor’s confidence and safety. The management needs to be cautious in the kind of non-banking business it engages in. Care should be taken to exit all non-profitable investments and fully utilize the company’s holding status in building wealth for its esteemed stakeholders.

The stock is currently trading at a 260% discount to our fair value estimate of N12 per share. We are optimistic that despite the tight operating environment in Nigeria, with the implementation of the Treasury Single Account policy of the Federal Government which tightened the liquidity condition in the Nigerian financial system, the steep tank in oil prices which posed a major threat to asset quality for most Nigerian banks as a result of their exposure to the sector and the tight currency control policies of the CBN which has weakened the earnings capacity of banks in the country, FBN Holdings  has the capacity to wither the storm.

Although we expect major headwinds at least all through the second half of 2016, it is our opinion that the massive drop in share prices will adequately compensate for any unexpected down side risks. We are also impressed with the steady rise in the company’s Book Value position over the last few years. However the bank must be proactive with its Return On Equity growth. We have a BUY recommendation on the shares of  FBNH .