Fidelity Bank remains in contention for the top Tier-2 market share

Article Summary

  • Fidelity Bank remains in contention as one of the most promising tier-2 banks in the country. It has steadily grown earnings over the past five years at an average growth of 15.30% per year.
  • It has maintained high asset quality and a healthy balance sheet with its Regulatory Ratios well above the minimum regulatory thresholds.
  • Its shares have been on investment analysts’ stock picks. The share price at N5.79 on Friday, May 5, 2023, has yielded about 33% return this year, confirming analysts’ BUY rating as a value stock.

Fidelity Bank has continued to record impressive performance across key income and balance sheet lines. In 2022, the Tier-2 bank posted a 5-year record growth of 113% YoY in profit before tax.

A review of the bank’s 2022 FY audited financials showed the bank’s profit before tax hit N53.677 billion, the highest in five years and higher than its peer’s (FCMB) PBT of N38.570 billion for the same period. Not all.

The record PBT figure surpassed the 2022 FY target of N48 billion. Looking at its Q1 2023 results, it is most likely it will beat the 2023 guidance. The Tier-2 bank recorded a 74% QoQ growth in PBT to N17.94 billion.

On the back of the impressive performance, the bank has proposed the payment of a final dividend of 40 kobo per share for 2022FY to be paid on May 23, 2023, for members that appear on the Register of Members on May 15, 2023.

Fidelity Bank’s growth drivers

One of the key reasons driving earnings growth is the impressive growth in gross earnings fuelled by reasonable growth in interest and similar income.

For instance, in 2022FY, the bank recorded a 34.40% growth in Gross Earnings YoY to N337.05 billion, slightly above FCMB’s 33.47% YoY (N282.982 billion). While the growth in gross earnings was driven by 45.2% growth in interest and similar income to N295.578 billion, the increase in interest income was led by a combination of improved yield on earning assets and 19.1% YoY expansion in earning assets to N2.64 trillion.

This trajectory was sustained in Q1 2023, with gross earnings up 42% to N101 billion buoyed also by a 43% growth in interest and similar income. But unlike in 2022, the growth in interest income in Q1 was driven more by improved yield on loans than expansion. In Q1 2023, the bank expanded its loan book by N45.236 billion compared to N167.588 billion in Q1 2022.

Expectations for 2023

With profit before tax guidance of N70.00 billion for 2023 FY, a combination of improved yield and expansion on earnings assets will place the bank in a vantage position.

This is very important considering that interests earned on loans and advances make up a significant portion of the bank’s operating income. The bank’s interest income from loans and advances in Q1 2023 stood at N73.910 billion (Q1 2022: N48.652 billion). This value represents about 73% (Q1 2022: 68%) of the total operating income in Q1 2023.

More so, as the bank’s operating expenses have continued to soar, it becomes imperative to earn more. Despite the improvement in the Cost-to-income ratio to 67% in 2022, from 74.9% in 2021, CIR is still high. The CIR is the only key performance indicator that missed the guidance, though the bank had explained in a statement that a further drop in CIR is expected to come from a combination of increased revenue and moderation in OPEX.

That said, historically, Fidelity Bank has maintained high asset quality and a healthy balance sheet with its Regulatory Ratios well above the minimum regulatory thresholds. Key ratios underlining management efficiency, profitability, asset management, shareholders’ value creation, etc., trended upward.

In 2022FY, the bank reported a Liquidity Ratio of 39.6% and a Capital Adequacy Ratio (CAR) of 18.1% compared to the minimum regulatory requirement of 30% and 15% respectively. Its Non-Performing Loans (NPL) ratio remained unchanged at 2.9%.

Investment Perspective

Fidelity Bank is one of the leading inflation-hedging stocks on the NGX having closed 2022 with a share price return of 70.59% and dividend yield of 11.5%.

The share price over the past three months has witnessed buy-interests. It is the 4th most traded stock on the NGX. As a result, its share price has moved up from N4.35 it started with this year to N5.75 as of last trading on Friday, May 5, 2023, due to the buy-interests and investors’ sentiments and thus has gained 33.1% YtD, ranking it the 20th on the NGX in terms of year-to-date performance.

In terms of dividends, the bank set a personal record with its 10 kobo first interim dividend in 2022. The bank further proposed a final dividend of 40 kobo, bringing the total dividend for 2022 FY to 50 kobo per share, which is above its dividend payment guidance of 25%-40% of annual net profit.

With this impressive performance, and the resemblance between its upward financial figures and ratios, the bank appears to be justifying investors’ confidence in the bank, typified by the steep share price appreciation.


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