Earnings miss limit FCMB (www.fcmb.com) stock upside potential. Despite the fact that its earnings faltered, analysts at Cardinalstone still advise to hold the stock in their portfolios, rating given to stock with good fundamental, and upside potential less than 15%.
Last week, FCMB Group released its third quarter of financial year 2019 result where it reported some earnings misses.
Its share performance has been affected significantly after the earnings announcement. Share price depreciated by 11.6667% in the last 7 trading days.
At the close of trading session yesterday, investors priced FCMB’s 19,802710,754 outstanding shares at N35.645 billion.
On year on year, earnings per share (EPS) declined by 5.3% to N0.54 for 9M’19 in its latest filing with the Nigerian Stock Exchange (NSE).
Analysts stated that the decline in earnings reflected significantly lower FX gains amidst a 19.3% year on year jump in personnel expenses.
The group numbers shows that interest income weakened during the quarter dropped 12.6% quarter on quarter.
This was as a result of 21.4% slump in interest earnings from loans and advances in the third quarter compare to the previous period.
Although, FCMB slightly grew loans, up 1.5% in the third quarter, the bulk of the growth likely came in the latter part of the quarter on CBN’s push on the LDR front.
Analysts think this likely explains the muted transmission of the growth in loans to interest income.
Meanwhile, non-interest income came in strongly during the quarter, surged 60.5% on quarter on quarter to N12.3 billion.
It was bolstered by reversal of about N4.8 billion relating to provisions for litigation deemed no longer necessary.
Other components of fee income were relatively flat quarter on quarter.
Analysts at Cardinalstone stated that adjusting for the impact of the N4.8 billion litigation-related reversal, which analysts believe is nonrecurring.
“FCMB would have made a loss of about N1.5 billion in Q3’19. This is concerning, in our view”, analysts stated.
It was however observed that its operating expenses increased by 17.8% in the third quarter compare to the previous one, causing a 6.7 ppts rise in cost to income ratio to 78.8%.
Adjusting for the non-recurring litigation-related reversal, effective cost to income ratio increases to 93.9% in Q3’19.
As at September 2019, FCMB’s loan to funding ratio was 57.4%, lower than CBN’s initial guideline of 60%.
“However, we note that non-performing loan and Capital adequacy ratios of 3.5% and 185, respectively, are well within the regulatory limits”, Analysts at Cardinalstone reckoned.
By Julius Alagbe
