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FBN HOLDINGS PLC
Broad improvements likely to persist in FY’23

Analysts are encouraged by FBNH’s notable milestones in 2022: 1) achieved an NPL ratio of 4.7% in 9M’22, below the regulatory threshold of 5.0% for the first time in 9 years, 2) grew NPL coverage ratio to 75.1% (FY’21: 62.2%), and 3) moderated cost of risk from an all-time high of 9.4% in FY’16 to 2.5% in 9M’22. In addition, they are intrigued that the 24.9% growth in credit assets did not result in a material deterioration in the credit quality ratios. In their view, these developments give credence to the Bank’s revamped risk management initiatives. It also possibly put to rest lingering concerns over the adequacy of measures taken to arrest the bank’s asset quality concerns over the years.
While they applaud the successes achieved with credit risk exposures, we remain edgy about the relatively low capital buffers compared to peers. At a CAR of 17.1% (adjusted for potential 9M’22 earnings capitalisation), FBNH’s capital buffer still trails its tier 1 peer average of 4.8ppts. Though management has attempted to allay these worries, we opine that the imminent transition to the more stringent BASEL III and the Bank’s growth exigencies could fuel the need for external capital injection in the near to mid-term.
Elsewhere, they believe the prevailing rate environment is NIM accretive for FBNH, supported by its large interest-earning asset base and a huge stock of low-cost deposits relative to peers. Additional earnings support could come from improved international subsidiary contributions (from 0.0% in FY’16 to 34.1% in 9M’22) and robust transaction-based income. Already, the like the improved PPOP/impairment charge1 cover of 3.9x (vs 1.1x in FY’16). Downside risks may include the potential worsening of cost pressures and impairment charges driven by the prudential need to increase NPL coverage.
An important consideration for the Group in FY’23 would be optimising its current portfolio mix to enhance value. In our view, the banking subsidiary remains the mainstay of the Group, with revenue and PBT contributions averaging 95.0% and 90.0%, respectively, in the last 3 years, highlighting significant sector concentration risk. To the analysts , this materially low non- banking contribution to performance hushes the diversification benefit of a HOLDCO structure in the first place.
They revise their TP for the counter to N12.19 to reflect the accretive impact of the high-yield environment and moderation in cost-of-risk. The new TP implies a potential 6.0% upside to our ref price of N11.50, with the stock trading at a forward PB of 0.37x compared to its 4-year average of 0.40x. Analysts retain their HOLD rating.

HOLD
Target Price: N12.19

Ref Price: N11.50

Upside/(Downside): +6.0%
Market Data

FBNH Market Cap (N’bn) 412.79

Last close price (N) 11.50

52-week high-low price (N) 12.40/ 8.20

Avg 3M daily volume (mn) 13.61

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