Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

EQUITY RESEARCH
NIGERIA
DECEMBER 2011
BANKING
First established as City Securities Ltd in 1977, First
City Merchant Bank, was licensed in 1982, becoming
the first local bank in Nigeria to be established without
government support. In 2001, the bank changed its
name from First City Merchant Bank to First City
Monument Bank, FCMB, as it transformed into a
universal bank. A private placement of shares raised
over NGN 7bn, followed by the conversion to a public
liability company in 2004, whereupon it listed on the
NSE. In the bank consolidation phase in the mid-2000s,
FCMB acquired Cooperative Development Bank, Midas
Bank and Nigerian American Bank (former Nigerian
subsidiary of Bank Boston), and went from 26 branches
to 150 branches by 2007. FCMB currently has a
network of 149 branches and cash centres and 150
ATMs.
• FY 10 recorded a strong rebound in earnings, with the
bottom line rising to NGN 7.9bn from an annualised
NGN 847m in FY 09. The result was driven by nonfunded
income growth of 59.39% to NGN 18.1bn, as
net interest income actually declined during the year
by 10.39% to NGN 21.9bn, as well as an improved CIR
and a net provision write back position.
• Contrastingly, it was the funded income line that
drove revenues in the 9M 11 results, up 40.58% on a
net basis to NGN 22.2bn, while non-interest income
recorded an increase of 28.94%. The CIR further
improved to 64.89% and attributable earnings closed
the period at NGN 7.9bn, up 72.81%.
• With its retail unit only just having broken even in Q3
11, FCMB has sought to strengthen its position in the
sector via the acquisition of one of the rescued banks,
FinBank.
• Our DCF valuation for FCMB comes out at NGN 9.56
per share, substantially above its current share price
of NGN 3.78. This is a pre-M&A valuation, and a
coverage based PBV average based on the last
published post merger pro-forma accounts suggests a
valuation of NGN 7.99 per share. BUY.
Recommendation
BUY
Bloomberg Code
FCMB:NL
Current Price (NGN) 3.8
Current Price (USc) 2.3
Target Price (NGN) 9.6
Target Price (USc) 5.9
Upside (%) 152.9
Liquidity
Market Cap (NGN m) 61 505
Shares (m) 16 271
Free Float (est. %) 72.4
Ave. daily vol ('000) - 1 yr. 4 880
Price Performance
Price, 12 months ago (NGN) 7.8
Change (%) (51.5)
Price, 6 months ago (NGN) 7.8
Change (%) (51.5)
Financials (NGN m) 31 Dec F2010 2011F 2012F
Loans & Advances 330 421 367 156 409 402
Net Interest Income (excl. Provisions) 21 934 31 116 39 575
Non-Interest Income 18 080 19 404 23 553
Attributable Earnings 7 935 11 099 17 442
EPS (NGN) 48.8 68.2 107.2
DPS (NGN) 35.0 40.9 64.3
NAV/Share (NGN) 828.3 870.8 947.8
Valuation Ratios Current 2011F 2012F
Earnings Yield* (%) 18.3 18.0 28.4
Dividend Yield (%) 9.3 10.8 17.0
PE* (x) 5.5 5.5 3.5
PBV (x) 0.45 0.43 0.40
RoaA (%) 1.6 1.9 2.5
RoaE (%) 6.0 8.0 11.8
Net Interest Margin (%) 5.3 5.2 5.8
Cost to Income Ratio (%) 78.7 61.8 57.2
* - trailing
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
FCMB vs NSE ASI (Rebased)
Strengths
Weaknesses
Investment and corporate banking
Wholesale roots have meant interest margins lagged some peers
High CAR
Retai bank was loss making
Early foray into microlending
Relatively small branch network
Oppo rtunities
T hreats
Large market for microlending
Operational issues if they arise could delay business combination
Acquisition to give more scale and increase potential customer base completion
Cross selling opportunities Continued slump on NSE to retard investment banking earnings
17-Nov-11
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17-Nov-10
FCMB
NSE ASI
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