The FSDH Merchant Bank Limited (FSDH) Series 17, 18 & 19 Commercial Paper (CP) issuance of up to N15billion under its N40billion Commercial Paper programme which opened on October 18 closes today Monday, October 23.
The offer summary shows Series 17 Commercial Paper of 90 days is issued at implied yield of 11.7500percent and discount rate of 11.4194percent. Also, the Series 18 CP of 142 days is issued at implied yield of 12percent and discount rate of 11.4655percent. The Series 19 Commercial Paper of 240 days is issued at implied yield of 13percent and discount rate of 11.9781percent.
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FSDH Merchant Bank Limited (FSDH), is Nigeria’s premier merchant bank with a rich history spanning over three decades. The proceeds will fund short-term working capital requirements and general corporate purposes of FSDH Merchant Bank Limited. The CP is offered with issuer rating of A (Agusto) and BBB+ (GCR).
The company has three major income streams: interest income, fees and commission, and trading income. In 2022 financial year, the company’s gross earnings improved by 78.44percent year-on-year (YoY) to N24.60billion. This sharp growth resulted from a notable increase in the bank’s interest income, improving about 3.00x to N18.69billion in 2022 financial year (versus N6.86billion in 2021 financial year).
“This highlights the bank’s operational effectiveness. Similarly, in H1: 2023, the bank’s gross earnings grew by 61.57percent YoY, with all income streams contributing positively to this growth,” said Jennifer Audu, analysts at Lagos-based Meristem in their FSDH Merchant Bank Limited Commercial Paper recommendation.
“The company’s operating expenses increased (+23.65percent YoY) in 2022 financial year. However, the impact of this increase was mitigated by a significant operating income growth of circa 71percent, ultimately moderating the cost-to-income ratio (CIR) to 60.27percent (versus 83.43percent in 2021FY).”
“This emphasises the bank’s strong cost efficiency during 2022FY. Consequently, Profit After Tax (PAT) surged by 312.36percent YoY in 2022FY to N3.66billion. This elevated the bank’s net margin by 950 basis points (bps) to 16.80percent. Similarly, in H1:2023, these profitability metrics continued their respective upward trends, largely hinged on the bank’s impressive operating income. Consequently, the cost-to-income ratio and net margin were 55.49percent and 17.26percent, respectively. In addition, profit after tax (PAT) settled at N3.03billion. For the remainder of the year, we expect an uptrend in asset yield; hence, the gross earnings and PAT are expected to improve.
“In H1:2023, the bank had a total balance sheet size of N388.17billion (versus N251.86billion in 2022FY), of which 17.41percent and 15.30percent were held as cash and investment securities, respectively. In addition, FSDH’s liquidity ratio stood at 55percent as of 2022FY (higher than the regulatory minimum of 20percent). Conversely, its net operating cash flow improved slightly to a negative value of N1.95billion in 2022FY (from a negative value of N27.19billion in 2021FY). Nonetheless, we highlight that FSDH maintains a stable liquidity position and can adequately service its short-term obligations when due.
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“Financial leverage and debt-to-equity ratios grew to 9.29x and 8.29x in 2022FY (from 7.03x and 6.03x in 2021FY), respectively. Nevertheless, we do not consider the risk of default significant. In addition, the bank’s capital adequacy ratio stood at 20.18percent as of 2022FY (above the regulatory minimum of 10percent),” the Meristem research analyst said.
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