Analysts Queue Behind Fidelity Bank After Earnings Beat

Equities analysts have recommended Fidelity Bank Plc as a stock to buy following its latest earnings beat. The bank’s performance rode on interest rate hikes, and liberalisation of the naira to boost its bottom line.

There was pressure from impairment charges, but this was washed off by about N51 billion FX gain reported in the period. Looking into the bank’s future earnings expectation, analysts have started queuing behind Fidelity Bank, valued at about N250 billion on the Nigerian Exchange.

Equities, investment analysts at CardinalStone Securities Limited recommend the stock as buy following the strong earnings performance in the first half of 2023. Futureview financial services Limited expects a 9% upside in its recommendation.

In its unaudited result for the first half, the tier-2 lender profitability strength increased significantly due to the positive effect that naira devaluation has on its income statement. Its first half of 2023 profit was supported by revaluation.

This resulted in a 133.3% year-on-year uptick in its profit for the period which settled at N53.3 billion from N22.8 billion in the comparable period in 2022.

Gross earnings of the bank came strong, up by 62.6% year on year. Fidelity Bank’s gross earnings printed at N244.5 billion in the first six months of operation, from N150.3 billion in the equivalent period last year.

The surge was driven by increased loan appetite amidst monetary policy tightening that has pushed the average net margin on interest-yielding assets higher.

In the period, the bank’s net interest income surged 42.5% year on year to N107.8 billion from N75.6 billion in the comparable period in 2022. On the downside, the bank recorded a significant increase in loan loss expenses, signifying asset quality pressures.

Loans loss expenses recorded grew by 1183% year on year to N16.8 billion from N1.3 billion. The provision is estimated to settle at N27.7 billion in 2023.

Due to inflation pressures, the bank’s operating expenses spiked by about 37% year on year to N84.4 billion from N61.8 billion in the comparable period in 2022. Thus, pretax profit came at N61.2 billion in the first half of 2023, representing a year-on-year growth of 138.4 billion.

In its review, CardinalStone analysts noted that the bank recorded a 2.3x growth in earnings to N53.3 billion owing to a N50.9 billion foreign exchange revaluation gain on its foreign currency exposures.

Analysts said the FX revaluation gains supported the 4.2x surge in non-interest income. Fidelity Bank also performed strongly in its funded income segment, reflected in the 42.5% growth in net interest income to N107.8 billion, analysts said in the review.

On the whole, operating income improved by 83.0% to N162.4 billion and moderated the impact of a 36.7% increase in OPEX as the cost-to-income ratio declined by 17.6 percentage points to 52.0%

All in, cost-of-risk (increased to 1.3% from 0.1% in the comparable period in 2022. Overall, annualized return on equity (ROE) and return on assets (ROA) significantly improved by 15.4 ppts and 1.0 ppts to 30.7% and 1.0%, respectively.