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FCMB 2022, Q1: Harbinger of Juicier Outing in Full Financial Year.

The release of the full year result for 2021 by First City Monument Bank (FCMB) does not  only promise a perpetual stay within the black lines of profitability ; it also leaves glimpses of  superior returns to its stakeholders from the bank that has a vision of changing its status from a tier 2 lender  and joining  first tier  club very soon .

The impressive 2021 performance was a morale booster to the bank’s stakeholders and this raised their expectations for better performance in 2022 financial year . It is with this level of expectations that investors and ,indeed, the financial world waited to see FCMBs first quarter result for 2022 financial year . FCMB did not disappoint; it consolidates on the previous impressive performance. At both the top and bottom lines , the result is highly inspring . No doubt , its first quarter result which ended March 30th 2022 is an harbinger of juicier outing of the year 2022 .In the first quarter ,the  company reported Profit before minimum tax and income tax of N6.02b  from N4.23b in the corresponding period of 2021 ,an increase of  42.4% ; its Profit after  tax rose by44.6%  to N5.17b6 from N3.57b for the same period in 2021 . While FCMB’s current net profit margins at 17.4% are higher than last year 17.1%, its earnings per share also took an upward swing to 26kobo compared to 18 kobo a year ago .;its gross margin hits  99.21% while Debt/Equity Ratio 143.9%, indicating a big heart for risk

 Moreover,  while FCMB’s earnings have grown by 18.1% per year over the past 5 years,  its  earnings growth over the past year (21.8%) exceeds its 5-year average (18.1% per year) and  earnings growth over the past year (21.8%) exceeded the Banks industry 16.9%. However ,  while FCMB’s Return on Equity (9%) is considered low ,it is also a competitive figure among tier 2 lenders .

The gains delivered were not limited to the above. FCMB has more than the above  attractions that drive stakeholders optimism and enthusiasm towards the brand . Though its earnings  grew by 21.8% over the past year  and they are equally forecast to grow 14.55% per year by analysts .  Moreover, its  revenue (13.8% per year) is forecast to grow faster than the market (11.7% per year).

This leaves investors craning to take another look at the bank’s performance. The firm performance is a harbinger of a juicier outing in the 2022 financial year. This impressive performance provides the sinecure currently driving its stock value .  FCMB closed its last trading day of Tuesday, May 31, 2022  at  N3.50  per share on the Nigerian Stock Exchange (NGX). FCMB began the year with a share price of  N2.99k and has since gained 17.1% on that price valuation, ranking it 43rd on the NGX in terms of year-to-date performance.  

FCMB Group is the most traded stock on the Nigerian Stock Exchange over the past three months (Feb 28 – May 31, 2022). FCMB has traded a total volume of 3.08 billion shares—in 4,171 deals—valued at N11.2 billion over the period, with an average of 48.9 million traded shares per session. A volume high of 1.02 billion was achieved on March 14th, and a low of 74,316 on May 27th, for the same period.  .

Also by valuation FCMB is also attractive to investors and loaded with potential to deliver better future values . FCMB’s Price-To-Earnings Ratio (3.1x) is in line with the banking industry average; however,  FCMB is good value based on its Price-To-Earnings Ratio (3.1x) compared to the  market (8.5x), its PEG Ratio (0.2x)and  on its Price-To-Book Ratio (0.3x) compared to the NG Banks industry average (0.5x)

 The reason for the above view may not be farfetched. FCMB is one of those companies  with a low Price stocks that are often considered to be value stocks ;  it is  undervalued because its  stock price trades  lower relative to its fundamentals. This mis-pricing  is  a great bargain and  consequently prompts  investors to buy the stock before the market corrects it. And when it does, investors make a profit as a result of a higher stock price



 If anything, a racy earning assets figure should result in more robust earnings except may be spreads or the difference between interests earned and interests paid are not quite attractive. It could also be because commissions from non interest dependent transactions are dropping.

 For FCMB  these two indicators are on the rise ; practically all other performance metrics looked up in the first quarter of the year 2022. The reason behind this may not be far to seek .  In the face of lower interest rate environment, cautious loan growth, and capital preservation, benign funding cost, asset quality improvement, and resilience in non-interest revenue (NIR) were   central to  its good earnings  .

 Despite a stifling macro-economic environment, FCMB grew Gross income by 34 percent from N43.54billion to N58.31 billion. This was achieved on the strength of its   branches across the country and digital channels. The impressive paced growth seems to outpaced the marginal rise in fixed assets  and climb of earning assets. The grow in its gross earnings was  principally and specifically due to the 40 percent growth in interest income and  39%  per cent YoY expansion in non-interest income. The growth in interest income was driven by 31per cent rise in interest from loans and advances, which accounted for  81 per cent of total interest income.

 In  spite of  the low return on investment believed  by analysts to  be is systemic or an economy wide phenomenon resulting  of the general lull occasioned by the worldwide recession ,  the bank’s  investment decisions  relative to last year’s  looked better this year in  terms of returns.Though the bank increased its  Gross loans and advances to customers or earnings assets  marginally by 3.7% to  N1.16trillion from N1.11 trillion , it  is the  biggest driver of its revenue in the period under review .While its  total earnings assets contributed 80% to its gross earnings , loans and advances to customers alone contributed 65% of the gross earnings and 81% of the total interest income  at N38.01b in 2021 compared to its interest income of  N46,69b in the first three months of 2022. This confirms  the strong  and competitive pedigree of the management of FCMB in the core banking income segment of   its income mix .   .

 Interest earnings  are bettered this  year’s  rising by 40 percent at N 46.69billion from N 33.38billion  despite an equally leggy interest expense figure of N18.54billion or a 52   percent jump from the former N12.52 billion  .The interplay between interests paid and those received ushered net income of N28.15billion, an 32,6%percent growth from N21.23billion.

 .Just as the impressive performance of the bank  could be  traced to the door step of the bank’s earning assets, what the bank makes from commission also lifted its fortunes  in the first quarter of 2022  .  Analysts from the Decisonmakers could link  the fortunes of the bank to  the ability of the bank to rev up this item of its balance sheet,  from the management understanding  that it naturally holds the key to stabilizing earnings especially at a time of recession and interest rates volatility is a factor in Nigeria  .

Fee and commission income inched up by 33.6 %    N10.23b from N7.66b just as Fee and commission expense hit N2..61b  from N2.0b, a 30.7% upward swing .Consequently , Net fee and commission income increased by 34.6%  to N7.62b  from N5.66b

 Much of the increase is traced to Electronics fees and commissions which rose to N3.14b from N2.84b  and Service fees and commissions  of N3.60b  from N2.45b   

The giant stride of net fee and commission income set the stage for   its very inspiring movements in the bank’s bottom line  

Also , contributing to its impressive bottom line is the Net trading income which rose phenomenally   by 62.9%  to hit N2.51b  from N1.54b  

Sequel to its   very inspiring rise in bottom line figures, marginal returns looked up. Though its operating profit margin hardly improved as it moved up to 66 percent from 65.5 percent , it is highly impressive ; its Pretax profit margins inched up to 10.3% from 9.7 % while net profit margins  stood at 8.7% against 8.2% a year ago .However , despite  the improvement  in  the  net profit margin, the current higher  rate of inflation  represents a  7 percent  loss  to investors

Though ,the bank  assets fell by marginal by 0.5  percent in the period from N2.49trillon in2021 to .N2.48trllon in 2022  its assets   contribution   to profit still improved  as Return on assets  rose to 0.2 percent  from 0.1 percent.

The bank supported businesses by growing Loans and advances 3.5 percent from N1.06trilon to N1.10trillon  Despite the increase in its loan portfolio its  level of bad loans at 4.1% falls within the regulatory requirement while its allowance for bad loans is  sufficient at 108%.; FCMB also has an appropriate level of Loans to Assets ratio  at 44% just as its Loans to Deposits ratio  at 65% is considered appropriate by analysts .

One implication this is that the bank is assuming more risk than it did the year before. But then again, a pre condition for better return is by taking on more risk. Moreover , the   management of FCMB believes that there is a swath of opportunities out there just waiting to be taken advantage of.; the bank believes , there are great ‘opportunities in consumer lending, retail deposit growth, and alternate channels offering from an acutely underserved segment.”  It also  sees opportunities in the oil and gas industry as local players enter the upstream end of the market. It is a chance for ‘equity and debt raising, as well as advisory services”. This explains the reason for the bank’s improvement on net interest income.

 To confirm confidence reposed on the brand ,it  grew   its haul of deposits  1.1 percent to N1.57trillion  from N1.55trillion . However , it is impressive to note that  76% of FCMB’s liabilities are made up of primarily low risk sources of funding.

But FCMB’s Assets to Equity ratio  or equity multiplier currently at  10x  is considered to be low by analysts indicating it was cautious on risk taking  during the period under review   .This is a financial leverage ratio that measures the portion of company’s assets that are financed by stockholder’s equity  . A high multiplier indicates that a significant portion of a firm’s assets are financed by debt, while a low multiplier shows that either the firm is unable to obtain debt from lenders or the management is avoiding the use of debt to purchase assets.Like other financial leverage ratios, the equity multiplier can show the amount of risk that a company poses to creditors  In fact, creditors and investors interested in investing in a company use this ratio to determine how leveraged a company is.

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