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Fidelity Bank shows strength in H1 for tier-1 journey

…Analysts rate stock a ‘Buy’

Last weekend, Nigeria’s leading tier-2 lender, Fidelity Bank Plc released its audited financial statements for the six months (H1) ended June 30, 2021. The lender’s impressive half-year scorecard no doubt supports industry watchers views that the bank is strongly furthering its course to a tier-1 status.

Impressive top-to-bottom line figures
Fidelity Bank grew its pretax profit by 72.4percent to N20.6billion, from N12billion recorded in H1 2020. Profit After Tax (PAT) of N19.306billion in H1’21 as against N11.303billion in H1’20 represents an increase of70.8percent.Net Interest Income (NII) increased from N48.320billion in H1’20 to N50.297billion in H1’21, up by 4.1percent.

The bank’s Operating Expenses (expenses it incurred through its normal business operations in H1’21) decreased from N46.841billion in H1’20 to N42.247billion in H1’21, down by 9.8percent, helping it to gain a competitive advantage and increase earnings. The result at the Nigerian Exchange Limited (NGX) shows Gross Earnings increased by 6.2percent year-on-year (YoY) to N112.3billion.Operating profit increased from a low of N16.848billion in H1’20 to N27.924billion up by 65.7percent.In the review first half, Fidelity Bank recorded N7.2 billion drop in key expense lines as the bank deepen its operational efficiency through process improvement and cost optimisation.

Management’s seven-point agenda
Nneka Onyeali-Ikpe, Managing Director/Chief Executive Officer of Fidelity Bank Plc had earlier this year outlined seven-point agenda for the bank hinged on innovation, brand refresh, workforce transformation, service excellence, digital transformation, performance discipline and accelerated growth all targeted at propelling Fidelity Bank to tier one status by 2025. Onyeali-Ikpe assumed duties on January 1, 2021, following the retirement of the former MD/CEO Nnamdi Okonkwo on December 31, 2020.

Fidelity Bank provides banking and other financial services to corporate and individual customers from its Headquarters in Lagos and 250 business offices. These services include retail banking, granting of loans and advances, equipment leasing, collection of deposits and money market activities.

Behold other key drivers of the impressive H1 scorecard
Gross Earnings increased by 6.2percent year-on-year (YoY) to N112.3billion on account of 27.8percent growth in non-interest revenue to N23.8billion from N18.1billion in H1 2020. The bank’s non-interest revenue (NIR) was driven by strong growth in Commission on Banking Services (57.7percent), Account Maintenance Charges (50.6percent), Digital Banking Income (49.4percent) and Trade Income (33.7percent), among others as total customer induced transactions across all the bank’s distribution channels increased by 58.percent YoY and 21.2percent quarter-on-quarter (QoQ).

Net Interest Margin came down to 5.3percent as the drop in average yields on earning assets surpassed the decline in average funding cost. Average yields on earning assets dropped by 130 basis points (bps) to 9.4percent from 10.7percent in 2020FY while average funding cost declined by 43bps to 3.2percent from 3.6percent in 2020FY.

In absolute terms, net interest income increased by 4.1percennt due to 1.7percent YoY increase in total interest income and 1.2 percent decline in total interest expenses. Though the average cost of deposits remained low at 2.7percent, interest rates on deposits are ticking up with the gradual recovery of business activities and market yields. Operating Expenses dropped by N4.6billion (9.8percent YoY) to N42.2billion.

Read also: Access Bank’s $500m Eurobond makes history with record subscription

Total Deposits increased by 16.5percent year-to-date (YtD) to N1.980trillion from N1.699 trillion 2020FY, driven by increased deposit mobilisation across all deposits types (Demand, Savings, and Tenor). Also, foreign currency deposits increased by 23.1percent YtD ($149million) and now accounts for 18.5percent of total deposits from 17.5percent in 2020FY.
Net Loans and Advances increased by 15.8percent YtD to N1.535trillion from N1.326trillion in 2020FY. However, the actual growth was 14.7percent while the impact of the currency adjustment (2020FY: N400.3/$ – H1 2021: N410.6/$) accounted for a 1.1percent YtD growth in the loan book.

Digital, diaspora banking gaining traction
Digital Banking gained further traction as Fidelity now has 55.1percent of its customers enrolled on mobile/internet banking products and 89.3percent of its customer-induced transactions were done on digital platforms. Also, the bank continues to harness the benefits of its renewed drive in the Diaspora Banking space.
In the H1’21, the bank’s cost of risk (which is the cost of managing risks and incurring losses due to risk) came in at 0.3percent and the non-performing loan (NPL) ratio (Stage 3 Loans) dropped to 2.8percent from 3.8percent in 2020FY. Other regulatory ratios remain well above the minimum requirement: CAR at 18.8percent from 18.2percent in 2020FY.

H1’ 2021 Key Ratios
Cost to Income Ratio: 64.8percent compared to 65.1percent in 2020FY; Cost of Risk: 0.3percent compared to 1.4percent in 2020FY; Net Interest Margin: 5.3percent compared to 6.3percent in 2020FY; Return on Equity: 14.2percent compared to 10.5percent in 2020FY: Non-performing Loans Ratio: 2.8percent compared to 3.8percent in 2020FY; Capital Adequacy Ratio: 18.8 percent compared to 18.2percent in 2020FY and Liquidity Ratio: 33.3percent compared to 37.8percent 2020FY.

What the CEO said on the Bank’s performance
“We sustained our impressive financial performance with double-digit growth in profit as increased customer transactions drove non-interest revenue while improved operational efficiency continued to moderate cost-to-serve. This resulted in 72.4 percent increase in profit before tax to N20.6billion from N12.0bn in H1 2020” said Nneka Onyeali-Ikpe, MD/CEO of Fidelity Bank Plc said.

“Digital Banking gained further traction as we now have 55.1percent of our customers enrolled on the mobile/internet banking products and 89.3percent of customer-induced transactions were done on digital platforms”, explained Onyeali-Ikpe who has very deep and diverse experience spanning Treasury Management, Legal Services, Corporate, Investment, Retail and Commercial Banking at various financial institutions.

Shares trading information in last 7 days trades
Date                     Price (Naira)  Volume
Sep-10-2021       2.3                 10,748,743
Sep-09-2021       2.3                  4,776,342
Sep-08-2021       2.33               10,078,554
Sep-07-2021       2.35                5,330,972
Sep-06-2021       2.35                4,945,571
Sep-03-2021      2.35               11,453,014
Sep-02-2021      2.4                   4,223,162

The N2.3 per share Fidelity Bank stocks traded at the Nigerian Exchange Limited on September 10 implies it nears its record 52-week high of N3.1 as against a corresponding 52-week low of N1.75. In the review H1’21 period, the bank’s earnings per share (basic and diluted)increased to 67kobo from 39kobo in H1’20. With shares outstanding of 28,974,797,023 units, Fidelity Bank’s market capitalization is in excess of N66.5billion.

Analysts see Fidelity stock is a good “Buy”
In their stock recommendation for this week, Lagos-based United Capital Research analysts asked investors to buy Fidelity Bank Plc shares. The analysts target price of N2.7 per share from the N2.30kobo it closed last week implies an upside potential of circa 17percent. Also, Meristem research analysts in their September 13 note recommended that investors should buy Fidelity Bank saying their target price (TP) for the stocks is N2.86, an upside potential of 24percent. Meristem said its Buy rating for Fidelity is because the Target Price (TP) of the stock is above the current market price by at least 10 percent. The stock’s price targets reflect in part the analyst’s estimates for the bank’s earnings.

Optimism over its H2’21 outlook
While Fidelity Bank remains committed to its medium to long-term strategic objectives, the bank looks forward to sustaining the current momentum in the second half (H2) 2021 by optimising its balance sheet and lowering its cost-to-serve which will translate to improved earnings.

Credit Ratings
The revised Prudential Guidelines of the Central Bank of Nigeria (CBN) requires all banks to be credit rated regularly, with the ratings updated every year and published in the Annual Report. In the period ended June 30, 2021Fidelity Bank Plc was assigned the credit ratings below by the following rating agencies:Fitch Ratings (Long-Term = B, Short-Term =B, Outlook = Stable); Standard & Poor’s (S&P) (Long-Term = B, Short-Term =B, Outlook = Stable); Global Credit Rating Co (GCR) (Short Term = A2, Long Term = A-, Outlook = Negative), and Agusto & Co (Short Term = -, Long Term = A, Outlook = Stable).

Keeping faith with a vision to be “No. 1” in the market, branded products
The bank’s shared values of Customer First, Respect, Excellence, Shared Ambition and Tenacity (CREST) continue to be the guiding principles which it believes are necessary to sustain the growth of the business and its relationship with stakeholders, while keeping faith with its Vision to be “No. 1 in every market it serves and every branded product it offers. Fidelity Bank has successfully completed the CGRS (Corporate Governance Rating System) assessment of the Nigerian Exchange and is CGRS rated.

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