FIDELITY BANK PLC: Admirable franchise momentum
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FIDELITYBK’s market share has greatly benefited from aggressive multiyear balance sheet growth initiatives. For context, the Bank’s share of total assets—within analysts banking coverage ex ETI—has accelerated by a 5-year CAGR of c.24.3% to c.6.3%. This strategy, combined with regular asset reallocation campaigns and monetary hawkishness, has allowed the bank to 1) increase liquidity through an increasingly low-cost funding mix (CASA stock now 83.1% vs the prior 3-year average of 76.1% , 2) strengthen credit creation (3-year CAGR: 21.3%), and 3) optimise bottom-line expansion (4-year CGAR: 15.8%). Moreso, the company’s business profile will likely be further buoyed by the imminent acquisition of Union Bank UK Plc, which could boost service ecosystem while exploiting cross-border financing channels.
In FY’23, analysts believe profitability will continue to improve on tightening monetary environment, enhanced asset quality, and better fee-based income. While future rate hikes could further trouble the domestic business terrain, analysts are encouraged by FIDELITYBK’s bolstered capacity to generate interest-earning assets whilst mitigating credit impairments (stage 3 ratio now at 2.7% vs FY’21: 2.9%). Furthermore, analysts estimate non-interest income to advance by a 15.0% CAGR over analysts 5-year analysts forecast horizon, largely driven by sustained digital income momentum. Despite the fee income growth, see scope for muted NIR-II ratios (5-year average: 10.9%), per the historically constrained contribution from the Bank’s capital market activities.
To this end, analysts are wary of the bank’s earnings sustainability on account of a seemingly unchanging monoline focus and inadequate diversification.Notwithstanding the rapid credit risk growth on account of aggressive loan booking, analysts adjudge the bank’s capital buffers (CAR: 19.8%) to be adequate by Basel III standards. Adjustments to our model result in target price of N4.72 (vs N3.59 previously). Analysts upward TP review reflects a capture of the bank’s continuing expansion in interest earning assets, improving ability to maximise benefits from changes in the yield environment and dividend payout potential. Analysts also project a potential 2.0 ppts increase in ROCE over our forecast horizon. However, given recent rally in the stock’s price, analysts TP translates to SELL recommendation