Analysts see subdued market reactions to Fidelity Bank shares as Q3 PBT come in at N9.4bn

By Charles Abuede

• But shares outperformed NSE-ASI to rally at +19% return on the index
• Customers deposit grew 7% Q/Q

Following a third quarter earnings decline analysts at FBN Quest Capital Research say they expect to see a subdued reaction from the market to the shares of Fidelity Bank, even while noting that on a year-to-date (YTD) basis, the lender’s shares have outperformed the Nigerian Stock Exchange All-Share-Index, rallying +19.0 per cent compared with 13.1 per cent return on the index.

Fidelity Bank Plc saw its third quarter profit before tax (PBT) fall by -13 per cent year on year to N9.4 billion from the N10.8 billion recorded in the corresponding period of 2019. A spike in loan loss provisions accounted for the offset of a 4 per cent year on year increase in pre-provision profits, according to the bank’s recently released financials.

The bank’s condensed unaudited financial statements for the period ended 30 September 2020 accessed by Business A.M. on the NSE website shows that the bank also recorded a N1.5 billion decrease in its profit after tax to N9.1 billion for the period under review from N10.6 billion recorded in the third quarter of 2019.

Also, the bank’s cost of risk fell by 90 basis points by quarterly comparison (Q3 2020 versus Q3 2019) to 1.0 per cent. However, the bank’s PAT was up by 66 per cent year on year on the back of a positive result of N2.4 billion in other comprehensive income as against the N3.6 billion in Q3 2019.

On a quarter on quarter analysis, the bank’s non-interest income fell by -59 per cent. Though, the year on year reduction in non-interest income was underpinned by a combination of factors including a -N526 million loss in other operating income as against the N1.9 billion in Q3 2019, a -N330 million loss in T-bill trading income and a -31 per cent deduction in net fee and commission income.

Although Fidelity’s Q3 2020 results showed a marked decline in earnings, its PBT and PAT beat forecasts by significant margins due to positive surprises in loan loss provisions and operating expenditures.  On an annualised basis, Fidelity’s 9 month PAT (ex other comprehensive income) implies a return on assets and equities (ROAE) of 11.0 per cent.

On the positives, the bank’s funding income advanced by 25 per cent year on year, supported by a 5 per cent quarter on quarter growth in the net loan book. Similarly, pre-provision profit was up 4 per cent year on year, thanks to the growth in funding income which offset declines on other revenue lines; while the year on year increase in pre-provision profit underpinned -280 basis points annualized reduction in the bank’s cost-to-income ratio to 57.4 per cent as against the 69.4 per cent in Q2; and in addition to the 5 per cent quarterly growth in net loans, the bank’s customer deposits grew by 7 per cent on quarter on quarter basis.