Fidelity Bank Valuation Spikes as Market Weighs UK Acquisition
Equities investors placed a much higher price on Fidelity Bank shares in the local bourse in the just concluded week following a healthy earnings heartbeat and management move to acquire Union Bank UK.
The bank told regulators in a notice that its management has entered into a binding agreement to acquire a 100% equity stake in Union Bank UK. It told public investors and other stakeholders that the Central Bank of Nigeria has issued it a letter of no objection.
Reacting to the news, Tier-II lender share price gained 11.1% as investors weigh the impact of the deal on the bank’s earnings expectations. This is in contrast to the Nigerian stock market performance, up 1.1% in the last seven trading sessions.
In the last seven trading sessions, the tier-II lender’s share price inched higher by 11.11%, according to data from the local bourse, taking its market capitalisation nearing N99 billion on 28.974 billion outstanding shares.
Nigerian Exchange banking index however popped 0.7% amidst equities investors’ portfolios rebalancing and repositioning in value stocks. Fidelity bank has been pursuing Tier-I banking identity unsuccessfully but the expansion appears to have sent a fresh signal that giving up isn’t the best strategy for one of the key market challengers in the banking space.
In the first half of 2022, the bank’s numbers showed moderate year-on-year growth in pre-tax profit, mainly due to a significant uptick in interest Income. The bank made N23.307 billion as a profit in the first half of 2022, translating to a 20.72% jump above the comparable period in 2021 when it saw a profit of N19.306 billion.
Bottom line growth was driven by lender’s interest income which spiked 52.9% year on year due to expansion in earning assets and improved yields on government securities.
Amidst cash reserve ratio debit for failing to meet the 65% loans to deposit ratio, Fidelity bank reported that its net loans to customers inched upward 15.3% in the first half of 2022 compared with the December 2021 position.
Overall, yield on average earning assets improved to 11.5% from 9.4% in H1 2021 and 10.1% in December 2021, according to equity report by CSL Stockbrokers Limited. Following a hawkish pose by the monetary authority, the bank’s interest expense also grew significantly, up 56.1% but was down 10.6% in Q2-2022 compared with Q1-2022.
Its year on year growth was mainly due to a significant growth in interest expense on term deposits and increase in interest expense on debts issued and other borrowed funds.
Though, Fidelity bank funding costs dropped to 4% from 4.5%, interest expense on term deposits rose 63.5% year on year while interest payments on borrowed funds increased 47.9%.
In the first half of 2022, Fidelity Bank Capital adequacy ratio printed at 19.8%, a comfort level above the 15% regulatory requirement. # Fidelity Bank Valuation Spikes as Market Weighs UK Acquisition