Fidelity Bank (Fidelity) in its recently released FY 2019 UNAUDITED numbers posted double-digit growth across key income lines. Gross Earnings grew 15% y/y to N217.3bn, coming above our estimate of N209.9bn. Buoyed by growth in Net Interest Income (up 12% y/y),Fidelity Bank (Fidelity) in its recently released FY 2019 UNAUDITED numbers posted double-digit growth across key income lines. Gross Earnings grew 15% y/y to N217.3bn, coming above our estimate of N209.9bn. Buoyed by growth in Net Interest Income (up 12% y/y),

Net Fee and Commission Income (up 17% y/y) as well as a positive balance on Impairment Charge (N6.8bn in FY 2019 compared to a negative of N4.2bn in FY 2018), Pre-tax Profit grew 29% y/y to N32.4bn, ahead of our estimate of N27.3bn. Accordingly, EPS rose to the highest level in over a decade, printing N1.02 in FY 2019 (vs CSL Forecast of N0.85 and FY 2018 EPS of N0.79).

Net Interest Income grew 12% y/y, supported by growth in Interest Income (up 16% y/y) which partly offset the increase in Interest Expense (up 20% y/y). The growth in Interest Income was on the back of a sturdy growth in the bank’s loan book (Net Loans to Customers grew 33% y/y; the highest level since 2011; 77%). We attribute the strong double-digit growth in the bank’s loan book to the directive of CBN mandating banks to maintain LDR of 65% by December 2019. On the other hand, the rise in Interest Expense (up 20% y/y) reflects the increase in Customers Deposits (up 25%y/y).

The bank recorded an impressive growth in Net Fee and Commission Income (up 17% y/y to N20.0bn), on the back of higher Account Maintenance Charges (up 16% y/y), Commission on Fidelity Connect (up 20% y/y) and Commission on E-banking Activities (up 23% y/y). We attribute the strong growth in these income lines to the retail strategy adopted by the bank which is hinged on leveraging technology in delivering banking services.

The bank reported positive Impairment Charge of N6.8bn in FY 2019 compared to a negative of N4.2bn in FY 2018, reflecting the impact of recovery efforts of management.

Operating Income grew modestly, up 5% y/y to N106.1bn but was slightly stronger during Q4 (up 6% y/y). The slower y/y growth was due to the fall in Other Income (down 64% y/y)- this was due to a first-time charge of N4.73bn, which management attributed to loss on financial assets.

Operating Expenses grew 12% y/y and 15% q/q. The above inflationary growth in OPEX compared to Operating Income led to a 486bps increase in Cost to Income Ratio (CIR ex-provisions) to 76.0% in FY 2019. We attribute the increase in OPEX to regulatory costs following the growth in its balance sheet (Asset base of N2.1trn in FY 2019 compared to N1.7trn in 2018).

Overall, Pre-tax Profit and Profit after tax grew by 29% y/y apiece to N32.4bn and N25.1bn respectively. On a quarterly basis, Pre-tax Profit grew 18% y/y to N9.4bn, due largely to a positive balance on Impairment Charge (N2bn compared to a negative Charge of N630m in Q3 2019). RoAE also improved to 13.8% in FY 2019 compared to 11.6% in FY 2018.

We have a target price of N2.97/s for Fidelity with a Buy recommendation. Current price: N2.11/s.

Nairametric