FCMB Group’s (FCMB) Q2 2024 earnings aligned with our forecasts. Nevertheless, we have cut our FY ’24-25f EPS forecasts by an average of -25%, primarily because of significant downgrades to our funding income forecasts Q2 2024 funding income missed our forecast by -27%. However, our new price target of N12.5 is only -16% lower because we have rolled over our valuation to 2024E. FCMB’s loan growth for Q2 ‘24 was 10% quarter-on-quarter (QoQ), resulting in a 33% growth in H1 2024. Consequently, we have revised our FY 2024 loan growth forecast to 36% from 25%. Despite this, our funding income forecast is 27% lower due to our cautious outlook on net interest margin (NIM), which dropped by 80 bps QoQ to 5.2% in Q2 2024. Management expects NIMs to recover above 6.0% by Q4 2024, with new equity replacing expensive funding.
Accordingly, we have lowered our FY 2024 NIM forecast by 200 bps to 6.1%. These factors contribute to the 17% cut in our FY ‘24 EPS forecast. According to management, the windfall tax on foreign exchange gains is expected to have a minor impact, as only 10% of the gains have been realised. To meet new capital requirements, FCMB plans to raise N397bn, including N110bn through its ongoing public offer, sales of minority stakes in two subsidiaries – likely Pensions and Consumer Finance -and the issuance of preference shares. FCMB shares are trading on a 2024E P/B multiple of 0.3x for an expected 10% EPS growth in 2025E. These compare with the average multiple of 0.8x for the 18% growth our universe of bank stocks is trading on. At current levels, our new price target of N12.5 implies a potential upside of 60%. Despite the potential upside, we maintain our Neutral rating on the stock due to the current uncertainty surrounding the regulatory environment.
Robust earnings growth, thanks to YoY decline in credit loss impairments: FCMB’s Q2 PAT grew by 18% year-on-year (YoY) to N31bn. Although pre-provision profit declined by -9% YoY, primarily because of a -30% YoY decrease in non-interest income, an -82% YoY reduction in credit loss impairments contributed significantly to the YoY earnings growth. In contrast to the decline in non-interest income, funding income increased by 25% YoY, driven by solid loan growth of 10% QoQ. Above the tax line, PBT expanded by 19% YoY, thanks primarily to the YoY decline in credit loss impairments. Based on our forecasts, we expect FCMB to deliver an FY ’24 ROAE of 21.8% (vs 24.7% in FY 2023).
