The banking sector, especially commercial banks, is one of the most profitable sectors of the Nigerian Economy churning out profits of close to a trillion in 2020 alone. They are also one of the highest employers of labours in the country employing over 93,000 Nigerians.
|Ex-Dividend Date||Dividend||Type||Payment Date||Yield|
|Apr 09, 2021||0.15||Apr 21, 2021||5.19%|
|Apr 09, 2021||0.15||Apr 21, 2021||4.67%|
|Apr 15, 2020||0.14||Apr 28, 2020||8.14%|
|Apr 15, 2020||0.14||Apr 28, 2020||4.70%|
|Apr 12, 2019||0.14||Apr 29, 2019||7.22%|
|Apr 12, 2019||0.14||Apr 29, 2019||9.33%|
|Apr 13, 2018||0.1||Apr 30, 2018||6.17%|
Sitting at the helm of affairs is the Chief Executive/Managing Director, the highest-ranking executive in the organization saddled with the responsibility of making the best corporate decisions, oversight of the execution of the organizations corporate strategies and most importantly increasing the shareholders’ return. The buck basically stops on their table.
Sequel to this , these enormous responsibilities also come with a considerable executive compensation for their service making them ostensibly the highest-ranking staff of the bank. ; some banks’ CEOs are living in luxury and collecting mouth-watering salaries and allowances ,
But they expected to justify these with the creation of outstanding values . . Naturally , banks have five constituencies to serve and from these constituencies one can decipher its performance and health. These include the community at large which expects them to be good corporate citizens , the surplus units from which it borrows, the deficit units which borrow from them, the regulatory authorities whose interest is to ensure that every bank does not take excessive risks and the shareholders or investors . For the first four constituencies, FCMB’s performances do not raise any eyebrow . The fifth constituency are the shareholders which require adequate or maximum return on their investments in order to remain invested in the bank and to be willing to continue to provide additional resources as and when needed ,
However, either by commission or omission , some banks have turned themselves to mere rent seekers paying miserable or no dividends to their shareholders while there top managers live in affluence . One of the reasons for this is that they cannot , under any law, be prosecuted .
FCMB appears to be one of these banks over last few years due its less impressive performance and those at the receiving end of the lackluster performance are the shareholders , the provider of resources .After a long period of non -payment , the bank announced a return to dividend payment after seeing profits expand to an appropriate level to allow for it in the first half of 2014 ;it declared NGN0.30kobo and offered up attractive yields that year. But that decision could not be farfetched .That year its net income was N22b ; since then it has not hit that mark
The negative spillover effect of weak earnings or net incomes reflected on its unimpressive dividend yield and payout ratio; its current dividend yield is 4.9% as against its 15% Payout Ratio . FCMB Group current dividend yield is absolutely low .Moreover, despite its low payout ratio at 15.4% , its dividends have been volatile in the past 10 years and have fallen over the past 10 years . However , while FCMB’s dividend yield at 4.92% is higher than the bottom 25% of dividend payers in the market at 3.09% ,it is low compared to the top 25% of dividend payers in the market (7.25%). The only consolation is that FCMB’s dividend payments are well covered by earnings.
In absolute terms its dividend value picture becomes more miserable . .Between April 2016 and April ,2020 dividends paid were 0.1, 0.,1 ,0.1 0.14 0,14 and 0.15, while its dividend yields were 8 %,4.20 %,6.17%,9.33%,4.70% and 4.59 % respectively ; the percentage value may be deceptive compared to the actual payments
The agony of the shareholders becomes compounded with yearly transfer of its net incomes to its reserves .Virtually all its net incomes were transferred to the detriment of the investors or shareholders in the name of boosting its capital base without any outstanding values generated to justify investors big sacrifice year on year The amount transferred to the reserves between 2016 and 2020 were N14.3b, N8.6b ,N14.97b,, N17.3b,and N19.6b respectively
FCMB’s unimpressive profitability ratios and returns on shareholders investment have remained big threats to the bank’s stock price and market value . FCMB closed its last trading day (Thursday, November 25, 2021) at 3.05 NGN per share on the Nigerian Stock Exchange (NGX), recording a 1% drop from its previous closing price of 3.08 NGN. FCMB began the year with a share price of 3.33 NGN but has since lost 8.41% off that price valuation, ranking it 122nd on the NGX in terms of year-to-date performance.
From every indication , the problem with FCMB is lack a capable hand or strategic leadership to efficiently turn it around .With the release of the less inspiring ,flattish and lethargic third quarter result for 20 21 , the hope for a better and impressive full year 2021 for the First City Monument Bank , FCMB, becomes somehow ,at least unpredictable , if not very remote ;
FCMB’s Q3 ,2021 ,net profit was down , albeit at a negligible pace; the red ink blotting its progress in the full year 2020 could not be dabbed off leaving only promises of another stay outside the black lines of strong profitability. Moreover , other Comprehensive Income (OCI) including exchange translation and fair value reserve also played a spoiler role as its total comprehensive income further put the hope on hold backtracking further .Sequel to this ,the financial year 2021 also portends a repeat of another stunted season .
Rather than incremental improvements ,FCMB needs some fundamental improvements at both its top and bottom lines to facilitate its change of status from a catch up organization to the leadership position even as a tier lender. The revenue grew unimpressively by 2.1% to N149.5bn from N146.4bn in the previous quarter., Profit before tax grew merely by 0.7 % at N15.7bn., Profit after tax stood at N13.8bn.,down by 0.7% .FCMB’s net incomes in the last five years have been moving back and forth without any outstanding jump or pace forward .Between 2016 and 2020 its net incomes were N14.3b, N8.6b, N14.97b,N17.3b and N19.6b .These figures were a big disappointment to a high hope raised in 2014 financial year when its net profit hit N22b .Since then it has stayed below that performance.
. When the net profit is weak ,the margins and profit ratios confirm it and the returns to shareholders mirror it too . Even without transferring to the reserves ,the impact of the weak net incomes on values delivered to its shareholders are highly overwhelming . And when its profits are transferred to the reserves almost wholly, the experience is harrowing . This becomes clearer when certain profitability ratios are considered .Both the profit profile and profitability ratios of FCMB are ,in no small way, rendered less impressive and less competitive by the bank’s outrageous costs and its inability to win convincingly the battle of risks or prove its mettle in the art of maturity transformation, which is inherent in the core banking business .And these are indications that FCMB is in a dire need of strategic turnaround to gain leadership strength .
A look at some key profitability ratios like earnings per share ,net income margin ,return on equity and assets as well as its dividend yields and its market value confirm this view; all these are captured in the bank’s stunted fortunes over the last few years As regards the Earnings Per Share ,EPS ;a bottom-line measure of a company’s profitability and one of the smartest ways to expose any bank’s weakness or strength ,FCMB’s records here show it is traditionally delivering feeble returns ..Between 2015 and 2019 its EPS ranged between 24.04%,72.42%,47.53%,75.61% and 87.56% .But these figures in percentage may be deceptive; the absolute figures give a clear picture. From 2016 to 2020 its EPS is less than one naira per share if all its net incomes go to its shareholders .Within the same time frame above in absolute terms it moved forth and back from 0.72, 0.43, 0.75,0.87and 0.98 , With the current inflation and currency devaluation this is absolutely miserable
Another one is the net profit margin which between 2015 and 2019 were 3.12% ,8.13% ,5.54% 8.45% and 9.57% . It translates to the same thing as the bank is only converting less than ten naira of every hundred naira made at the top line to profit at the bottom line. FCMB’s Return on Average Equity is not impressive as it is considered to be low by analysts. .This metric reveals how effectively a corporation is at generating profit from the money that equity investors have put into the business. .Between 2016 and 2020 it ranged from 2.95,,8.40% 5.12%,8.04%,,9.0% to 9.2% .Its Returns on Average Assets appear to be better than its returns on Average Equity . Between 2015 and 2020 ,its ROAA were 0.41%,1.23%,0.80%,1.14%, 1.1% and 1.1% respectively; it is an indicator used to assess the profitability of a firm’s assets, and it often used by banks and other companies as a means to gauge financial performance
Also , FCMB’s stock returns at the market level is equally mind-boggling ; its current negative 6.2% market return underperformed the market which returned 17.5% over the past year. ;
This continues to give its stock a less impressive perception from the investors as indicated by the price-to-earnings (P/E) ratio, a fundamental indication of what investors are currently paying for a stock in relation to the company’s earnings . FCMB’s current PE Ratio is 3.1x compared to the industry average at 3.3x ; though this follows similar trend with the industry average , however this is below the market average at 7.2x .On the face value , this P.E is impressive indicating optimism on the part of investors ,however the bank’s earnings growth has been less impressive. To some analysts FCMB’s earnings growth rates don’t justify the P/E and its stock is even considered overpriced even at its low level currently. Its price to book ratio seems to be capturing its investors mindset ;its Price to Book Ratio at 0.3x compared to the industry average 0.5x .This less and more so it is even below the industry average
FCMB AND ANALYSTS’ FURURE FORECASTS
This uninspiring run is reflected on the analysts future forecasts on the bank and doesn’t give any assurance of quick improvements. FCMB’s forecast earnings growth by analysts at 12.5% per year is below the savings rate at 13.2% . At the earnings forecast of 12.5% per year the bank is also forecast to grow slower than the market at 15.6% per year .What the analysts are saying is that though its earnings are forecast to grow, but not significantly.
|Dividend Per Share||0.35||––||––||0.30||0.25||0.10||0.10||0.10||0.14||0.14||0.15||0.15||0.12|
|Trailing Dividend Yield %||8.37||––||––||12.05||14.79||9.09||6.76||5.29||7.57||4.20||5.00||5.00||6.58|
|Buyback Yield %||––||––||––||0.00||0.00||––||––||––||––||––||––||––||––|
|Total Yield %||8.37||––||––||12.05||14.79||9.09||6.76||5.29||7.57||4.20||5.00||5.00||6.58|
|Payout Ratio %||0.00||0.00||0.00||33.99||23.74||10.20||45.45||13.08||19.44||13.59||15.31||15.31||24.76|
Its revenue growth forecasts follow the same trend as its earnings with its revenue forecast at 9% per year .This is to grow slower than the market at 10.9% per year . Also , its future return on equity is forecast to be low in 3 years time at 12.3% though greater than its past Return on Equity of 8.3% ,both are considered low and painted a bleak future
The above bleak profile may not be farfetched . Analysis of its past earnings growth indicates FCMB’s earnings have grown by 16.9% per year over the past 5 years..However it has had negative earnings growth at -5.5% over the past year compared to the industry average of 10%