FIDELITY BANK: SAVING FOR TOMORROW, WITH 192% RETAINED EARNINGS GROWTH

Fidelity Bank recently presented its score-card for the full-year ended December 31, 2016 to the nation’s investment community slightly late, compared to the release date for the 2015 numbers. This, inconsistent date of releasing the bank’s scorecards will not help the investing public to plan their investment or predict the future release date.   

Meanwhile, highlight of the result included the decision of the board to save for the uncertain future by boosting retained earnings, following which there was a dividend cut, amidst a mixed performance as top line marginally moved north and bottom line faced the opposite direction. 

Comparing the 2016 figures to that of previous year shows that gross earnings inched up by 3.45% to N152.02bn from N146.95bn in 2015, while profit for the period dropped by a steep 30% from the N13.9bn in 2015 to N9.73bn. Shareholders’ fund was flat for the period at N185.4bn.

The bank’s non-performing loans book increased by 50.43% to N8.67bn from N5.76bn in 2015 due to economic challenges that adversely affected traders and manufacturers, among others, as well as the high inflation that increased its bad loan book at a time source of repayment were under threat. It must however be noted that Fidelity grew its customer loans and advances by 24.25% which equally widened exposure for the period. 

Earnings per share estimates for the said period stood at 0.34 kobo, a decline from 0.48 kobo  recorded in 2015, even as price drop that followed release of the result for the period has shortened investment period base  at  2.50x which has marginally reduced investors waiting period  from 2.83x. The said Earnings Yielded 39.99% of the market price as at released date, which is above the 35.28% Yield estimated in 2015. Return on equity declined from 7.53% in 2015 to 5.25% in 2016, a decrease of 32.41% in profit margin to 6.40% from 9.47% in 2015.  

The bank’s retained earnings for the period was nonetheless up by 192% from N8.8bn in 2015 to N25.72bn.

FIDELITY  BANK
Audited  Result 2016
COY	2015	2016	% Chg
	(N)	(N)
Date Released	March 31, 2016	April 7, 2017
Gross Earnings	146,891,000,000	152,021,000,000	3.45
Profit After Tax	13,904,000,000	9,734,000,000	-30.00
Shareholders' Fund	183,516,000,000	185,402,000,000	1.02
Dividend	0.16	0.14	-12.50
ESTIMATED RATIOS
Earnings Per Share	0.48	034	-29.17
PE Ratio	2.83	2.50	-11.61
Earnings Yield	35.28	39.99	13.35
Book Value	6.33	6.40	1.11
Price To Book	0.21	0.13	-38.10
ROE	7.53	5.25	-30.28
Profit Margin	9.47	6.40	-32.41
	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Fidelity Bank recorded decline year-on-year in profit before tax of 21.11%, while Price to Book Value dropped by 38.1% to 0.13 from 0.21 in 2015, making its shares attractive for medium and long-term investors. The bank’s profitability ratios for the year were equally mixed.

Technical View

Fidelity Bank’s price action revealed am upward rally as the market reacted to its full year  earnings reports before  pulling back to form a double bottom that  supports  continuation of trend.  The support and resistance level of the bank are N0.78 and N1.02 respectively.

Traders should watch out for upward reversal to first support level at N0.81 and second support at N0.76 or reversal to first resistance level at N0.92 and second resistance price of N1.01. The trend ability and momentum is strong   above ADX 20 at .5.65. 

Analysts Opinion/Recommendations

The 2016 numbers also revealed that Fidelity Bank is seriously undervalued as it is currently trading at 690% discount to its Book Values, while our Fair Value estimate of N4.00 per share.

We are optimistic that despite the huge provision and present economic situation, the bank will rebound as management moves to reposition its operations and further drive earnings.

Although we expect headwinds to continue till the third quarter of this year, it is our considered opinion that the bank’s impairment loss for 2017 will drop and push earnings to the north.

We have a BUY recommendation on the stock for medium and long term investment purposes.

               

FIDELITY
Share Holding Structure
Fidelity Bank has no major shareholder	Except   Stanbic IBTC with 3.2 %
Other Statistics
Shares Outstanding (MN)	28,974,797,023
Opening Price (2016)	1.45
Closing Price (2016)	0.84
Closing Price as at April  20, 2017	0.81
Date Listed	17th May, 2005
Year End	31st December

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Management

The management impact on its dwindling numbers as revealed by 2016 report shows that the challenging business environment has seriously affected the economic activities of traders, who have traditionally been the bank’s key focus over the years.  The board and management team are expected to foster growth and stability of the bank’s earnings performance, just as the enhanced infrastructure, state-of-the-art technology and rebranding drive profitability. The 2015 and 2016 performance considered as one is however a pointer to where the bank is heading, regardless of the unstable policy environment in its industry of operation upon which the recent intervention of the Central Bank of Nigeria (CBN) through provision of foreign exchange liquidity to every segment of the market. Such intensive intervention to enable players, including manufacturers, SMEs, traders, importers and exporters, access forex for machines and raw materials, among others, is expected to significantly impact performance in the coming months.

 Four years Performance Analysis

The bank’s gross earnings over a four-year period has grown consistently from N126.92bn in 2013 to N152.4bn, with the years 2015 and 2016 as period when its figures experienced a decline that affected dividend payout, particularly in 2016 when it paid the lowest dividend in the period. Nevertheless, there was noticeable improvement in its operations between the 2013 and 2016 financial years, attributed to internal restructuring to drive deposit and provide satisfactory service to its customers.

There have been few fluctuations in its share price due to the earnings power that continues to rise and fall since 2013 which it has sustained to the 2016 financial year-end. It reported a flat profit of N13.8bn in 2014 and N13.9bn in 2015, before declining to N9.73bn in 2016. Shareholders’ funds stands at an vantage point- about 13.42% of the turnover, after soaring from N163.46bn in 2013 to N185.4bn in 2016, representing growth.

FIDELITY  BANK FOUR YEARS FINANCIAL PERFORMANCE
	2013	2014	2015	2016
Date Released	April 2, 2014	March 31, 2015	March 31, 2016	April 7, 2017
Price @ Released Date	2.18	1.57	1.36	0.84
Gross Earnings	126,918,000,000	132,401,000,000	146,891,000,000	152,021,000,000
Profit After Tax	7,721,000,000	13,796,000,000	13,904,000,000	9,734,000,000
Shareholders' Fund	163,455,000,000	173,111,000,000	183,516,000,000	185,402,000,000
Dividend	0.14	0.18	0.16	0.14

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Estimated Performance Ratios

The bank’s earnings per share for the period is a reflection of its earnings power, oscillating from 27 kobo in 2013 to 48 kobo in 2014 and  2015 before dropping to 34 kobo in the 2016  released financials. The said EPS is same as 2.50x (times) of the market price at released  date and yielded 39.99% of market price from price to earnings ratio of 8.18x in 2013.  The Book Value looks attractive at N6.40, the growth in Book Value through the observed periods re-established confidence and assurance of further growth after the down trend which was as a result of earnings fluctuation and market trend.  The drop in EPS was attributed to economic headwinds and over regulation of its industry, just as Price to Book Value (PBV) is 0.13, on the strength of its Price-Earnings-Ratio of 2.50x, which is relatively low in its sector. The share price of fidelity bank is fairly and technically placed at N4.00 each.

FIDELITY BANK- ESTIMATED RATIOS
	2013	2014	2015	2016
Earnings Per Share	0.27	0.48	0.48	0.34
PE Ratio	8.18	3.30	2.83	2.50
Earnings Yield	12.22	30.33	35.28	39.99
Book Value	5.64	5.97	6.33	6.40
Price To Book	0.39	0.26	0.21	0.13
ROE	4.72	7.97	7.58	5.25
Profit Margin	6.08	10.42	9.47	6.40
Year End	Dec	Dec	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH