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THE AGONY OF FCMB’s SHAREHOLDERS

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.

FCMB Dividends

Ex-Dividend DateDividendTypePayment DateYield
Apr 09, 20210.15Apr 21, 20215.19%
Apr 09, 20210.15Apr 21, 20214.67%
Apr 15, 20200.14Apr 28, 20208.14%
Apr 15, 20200.14Apr 28, 20204.70%
Apr 12, 20190.14Apr 29, 20197.22%
Apr 12, 20190.14Apr 29, 20199.33%
Apr 13, 20180.1Apr 30, 20186.17%

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

SHARE PRICE 

 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.

WEAK FUNDAMENTALS

 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 P/B ratio above  indicates that the investors are willing to pay  less  for the company than its net assets are worth 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.

2011201220132014201520162017201820192020CurrentTTM5-Yr Avg
14.79
Dividend Per Share0.35––––0.300.250.100.100.100.140.140.150.150.12
Trailing Dividend Yield %8.37––––12.0514.799.096.765.297.574.205.005.006.58
Buyback Yield %––––––0.000.00––––––––––––––––
Total Yield %8.37––––12.0514.799.096.765.297.574.205.005.006.58
45.45
Payout Ratio %0.000.000.0033.9923.7410.2045.4513.0819.4413.5915.3115.3124.76

 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%

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