FCMB Equity Report - July 2011

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FCMB Equity Snapshot as at H1 2011 www.proshareng.com Page 2

ContentsContentsContentsContents

Executive Summary 03

Fundamental Analysis 05 o Dec, 2010 and Q1, 2011 Financial Year End Results - Analysis &

Review

Technical Analysis 15 o The Stock Price Performance at the NSE

The Analyst Opinion 17

ISSN 1597 8842 Vol.1 No. 71


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FCMB Equity Snapshot July 2011 ISSN 1597 - 8842 Vol. 1 No. 71

Executive Summary

First City Monument Bank Plc closed with impressive key ratios in the Q1 2011 result

presented. The bank topped the banking sector with leading gross earnings growth in

relative terms based on YoY performance. https://www.proshareng.com/reports/view.php?id=3318

This is in line with our expectations - that the bank would sustain the position recorded in

Q4 2010. The active and robust outlook of income components of the bank contributed

immensely to the performance, particularly the earning assets which boosted interest

income and commissions considerably . https://www.proshareng.com/reports/view.php?id=3381

To this regard, we have examined and analysed the Q1, 2011 result vis--vis its recent Q4

2010 position and other previous figures, using comparison methodology to ascertain clear

performance of the bank both in the last financial year and Q1 2011. A peer comparison

was equally conducted to highlight the banks position in the industry.

Our objective analysis and findings reflected the performance of the management of the

bank in-line with the banks organisational target and managements expectation during

the periods.

According to the figures presented by the bank, it was observed that the bank sustained

the leading gross earnings outlook in Q1 2011 as highlighted above. The banks gross

earnings closed with N16.63bn against N14.43bn recorded in Q1 2010, translating to

15.20% (YoY) uptake as against sector average of -7.35% - this is impressive as most of

the sector giants sustained negative positions. https://www.proshareng.com/reports/view.php?id=3318

In the same view, the bank recorded an improved profitability position, topping the sectorwith 194.72% PAT growth (YoY) to move from the second leading position achieved in Q4

2010. This has contributed to the outlook recorded on returns on assets and returns on

equity while the earning per share benefited immensely to sustain uptrend both on QoQ

and YoY performance.

The impressive profitability outlook could be partly traced to the improved and sustained

cost efficiency outlook recorded during the quarters as reflected by cost to income ratio

which closed lower at 67.14% (Q1, 2011) as against 78.67% recorded in the financial

year 2010.


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Further analysis revealed an impressive trend on quarterly basis as the bank achieved

gradual improvement from 106.07% cost to income ratio recorded in Q1, 2010 to close at

67.14%- an indication of effective cost management and improved operational efficiency,

which is commendable as against high cost profile observed in the sector during theperiod.

Also, the PAT and PBT margin benefited from the improved profitability base recorded in

the quarter as the PBT and PAT margin closed with better outlook of 14% and 13% growth

as against 8% and 6% recorded in the Q1, 2010 respectively- This reflects the true impact

of improved operational efficiency (Low cost to income ratio) discussed above.

On the other hand, the profitability outlook on QonQ performance experienced negativetrend when compared with 2010 financial year figure as PBT and PAT dipped by -61.93%

and -66.44% respectively in the face of moderated cost profile. This could be traced to

the plunge in the witnessed in operating profit/income coupled with loan loss provision

made in the quarter.

The operating income closed at N5.35 billion in Q1, 2011, a lower figure to N40.01 billion

recorded in Q4, 2010- to this regard, we advise the management reinvigorate any weak

business segments and find way to grow their loan book considerably which is likely to becontributory factor to the trend observed as buttressed by the bloated LDR of 99.81% and

reduced performance in loan growth.

More impressively, the bank sustained improved performance with nonperforming loans

both on quarterly and yearly trend as the NPL ratio closed lower at 5.29% as against

5.52% and 8% recorded in Q4, 2010 and Q1, 2010 respectively while the loan loss

provision of N0.5billion gives us concern.

The nonperforming loan closed at N19.12 billion as against N22.96 billion recorded in

previous year comparable period while Q4, 2010 closed in the same range of N19.29

billion- an impressive outlook when compared with 2010 half year which closed at N28.39

billion.

Conclusively, the technical analysis revealed that as at July 08, 2011, FCMB Plc traded

below its 20days, 50days and 200days moving averages of N7.25, N7.42, and N7.29

respectively, indicating bearish outlook in short and long term.


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On quarterly performance, the bank recorded negative gross earnings growth of -73.46%when compared Q4, 2010 figure, similar trend of negative growth of 73.75% observed inQ1, 2010 when compared with 2009 year end figure.

Similarly, the net interest income dipped significantly by -69.79% in Q1, 2011 whencompared with figures recorded in Q4, 2010 while negative growth of -82.67% observedin previous year comparable period. We therefore call managements attention to thistrend to put this under control. https://www.proshareng.com/reports/view.php?id=3381

Efficiency and ProfitabilityThe bank sustained impressive profitability base, riding on the back of improved efficiencylevel recorded in the quarter which is in line with our expectation, considering the previoustrend. Although the low performance recorded from operating profit in the face of improved cost management gives us concerns. https://www.proshareng.com/reports/view.php?id=3318


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The banks profit closed with leading percentage growth of 194.72% (YoY), far above thesector average of 33.04% at time of preparing this report. The growth outperformed mostof the sector giants, particularly the tier-one banks with average PAT growth of 65.54% inQ1, 2011.

FCMB Plc recorded N16.63 billion as against N2.66 billion recorded in Q1, 2010. The activecontribution recorded from major income components (non-interest income and interestincome) which stand at 64%, buoyed by earnings assets performance together with 33%growth in commission impacted the overall performance.https://www.proshareng.com/reports/view.php?id=3381

We observed that the bank experienced negative PAT growth of -66.44% (QonQ), webelieved that the provision of N0.5 billion for loss contributed to this while the lowperformance recorded in operating profit despite improved operating efficiency as we havecautiously noted above impacted the negative performance.

Nevertheless, the profitability position has increased the returns on Equity and Assetsbase of the bank while the earnings per share benefited immensely- an indication that thebank maintained strong commitment towards adding values to investors stake, despitethe hitch in the sector.


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More impressively, on the back of strong profitability and improved cost efficiency, theEPS recorded positive growth of 4.8% YonY and 1.6% QonQ while the ROA and ROEclosed with 0.45% and 1.94% positive growth respectively on quarterly performanceoutlook.

Also, the improved outlook on operating expenses gave support to the improved efficiencymentioned above. The operating expenses dropped by -74% QonQ to close at N8.04billion as against N31.47 billion recorded in Q4, 2010, though we observed 5% growth in

operating expenses when compared with Q1, 2010.Nevertheless the cost to income ratio recorded improved outlook on both yearly andquarterly outlook to buttress our above assertion on cost efficiency- this further revealseffectiveness of cost management strategies employed by the management during theperiod.

Margin Growth and Performances

The bank maintained positive margins as both net interest margin and PAT margin closedpositive buoyed by impressive profitability position and improved cost profile, indicatingwell managed operational expenses and strong profitability base.


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The Net Interest Margin closed at 5.7% above 5.3% recorded in financial year end 2010boosted by the active position of earnings assets which contributed immensely to interestincome by 64% positive growth. https://www.proshareng.com/reports/view.php?id=3381. Also, PBT andPAT margin closed at 21% and 16% above 14% and 13% recorded in Q4, 2010respectively.

However, we hope the management will sustain the improved cost outlook to boostprofitability and margins further as we remained optimistic towards improved performancein the coming periods while a proper attention to the bloated LDR will create more roomsfor loan growth.

Assets Quality ReviewThe bank closed with improved net assets by 5% (YonY) but witnessed lower performanceto sustain the uptrend by 2% (QonQ). This outlook is fairer when compared with 4% (YoY)recorded in financial year end 2010.

In addition, liquidity assets formed 31% of the total assets while total assets closed with25% positive growth when compared with total assets recorded in the previouscomparable period.- this is commendable as the assets base is averagely liquidity for shortterm needs which also reveals the liquidity advantage.https://www.proshareng.com/reports/view.php?id=3381


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We observed that the moderate growth in deposit and loans and advances gave support tothis outlook while 64% contribution from earnings assets to net income buttressed this

fact.

Also, the non-interest income contributed to the outlook highlighted above as the depositto asset ratio closed lower at 57.46% as against 62.17% recorded in Dec 2010 whichreveals the active performance of non-interest income components.


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The weak deposit growth experienced during the period could be partly responsible for thedecline recorded in deposit to assets ratio as loan growth closed flat- an indication of impressive performance of non-interest income.

To buttress this further, we cautiously observed that the bloated LDR of 99.81%

contributed to the flat position of loan growth. To this regard, we advise the managementto address the high LDR for loan growth.

However, we commend the improved outlook of nonperforming loans as the NPL ratioclosed lower at 5.29% against 8% recorded in the Q1, 2010 while it outperformed the5.52% recorded in Q4, 2010- an indication of healthy and quality assets base, thoughanother provision for losses to the tuned of N0.5billion gives us concern.

More so, the nonperforming loan closed at N19.12 billion in Q1 2011 as against N22.96billion recorded in Q1 2011 while it also closed above the N19.29 recorded in Q4, 2010. Acommendable improvement when compared with N28.39 billion recorded in Q2, 2010. Thesale of nonperforming loans contributed immensely to this trend while transaction underthe phase II is expected to further reduce the NPL in coming periods.https://www.proshareng.com/reports/view.php?id=3381


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Liquidity & Shareholders PositionThe liquidity position of the bank experienced a decline when compared the outlook withthe previous year comparable period- a falling trend as the outlook in the previous yearrevealed, which further suggests a signal to liquidity pressure as buttressed by bloutedLDR of 99.81% and reduced performance of CAR. Although, the liquidity position of thebank closed above the regulatory requipment of 30% with sufficient liquid assets,coverage ratio and improved NPL status. https://www.proshareng.com/reports/view.php?id=3381

In the previous financial year end, the liquidity ratio closed lower at 32% as against 37%recorded in Q1 2010, while the outlook dipped further in Q1 2011 to close marginallylower at 31.7%. The weak performance of deposit gowth observed in the quarter could bepartly responsible for the further liquidity plunge as highlighted above.


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We observed similar trend with the Capital Adequacy Ratio of the bank, closing lower withreduced performance of 28.2% as against 31% recorded in Q4, 2010- a lower

performance to 35% recorded in Q1,2010.

This futher buttressed the signal to liquidity pressure highlighted above. To this regard weadvise the management of the bank to make this a priority to put this under control byreinvigorate strategy towards deposit mobilisation.


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Nevertheless, the bank sustained positive growth with shareholders fund by 5%(YoY) inQ1,2011 as against a lower outlook of 4% (YoY) recorded in Q4, 2010-this could be tracedto growing profitabiiity base and improved margin position.

Conclusively. We suggest that the bank should reinvigorate business segments orsubsidiaries that are not adding value to bottom-line. This in our opinion will go a longway in boosting liquidity position, capital adequacy and shareholders fund accordingly.


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Technical Analysis Review

MOST R ECENT S TOCK P ERFORMANCE OF F IRST CITY MONUMENT BANK S HARES

First City Monument Bank Plc in the last eighteen months January 4 th , 2010 to July 8 th ,2011, the bank share price recorded -1.57% depreciations to close at N6.90 from N7.01 itclosed at the end of January 4th, 2010 trading session. With this trend, FCMB Plc hasdecreased in value marginally.

In the year 2010 alone, the share price of the bank closed with +6.99% appreciation, asagainst +18.87% appreciations recorded in the entire market in the period . Thispositive performance showed that the bank is marginally recovered in the period underreview after the general bearish trend of the market in 2009 coupled with the shake up in

the banking sector from August 14 th , 2009.

However, the year to date performance as at July 08, 2011 stood at -8.00% while marketperformance also closed negative at - 3.16%

THE ASI AND FCMB P LC

The All-Share Index and FCMB Plc share price experienced series of volatility as theytraded sideways. However, FCMB share recorded low performance in the year 2010 asASI closed with 19% appreciation while FCMB share price recorded +6.99% gain. More so,FCMB Plc year to date performance closed negative at -8.00% (July 08, 2011) as against

negative performance of entire capital market at -3.16%.


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Analyst Opinion

The bank recorded impressive ratios in the last two quarters, both top-line and bottom-line closed impressively with significant growth- a leading bottom-line growth in thequarter among the sector giants.

Also, the margins and EPS benefited from this outlook while the returns on both assetsand equity sustained the uptrend, the interest income and non-interest incomecontributed immensely to this- a performance in line with our expectation. https://www.proshareng.com/reports/view.php?id=3318

However, reduced performance was observed in liquidity and Capital Adequacy Ratio,pointing to liquidity pressure in the near term as suggested by bloated LDR and low loanbook growth which has been partly traced to reduced performance in deposit growth.

To this regard, the bank needs to tidy up its deposit strategy to brighten up the liquidityand Capital Adequacy Ratio outlook as these determine the continuity of the bank while

the outlook suggests inability of the bank to take advantage of possible or emergingopportunities in the near term despite reasonable portion of liquid assets in the balancesheet.

On the contrary, we commend the improved performance witnessed on NPL of the bank-an indication of strong commitment towards assets quality. Nevertheless, we advise thebank to improve more on assets quality and risk management of the bank as we noticedloan loss provision during the quarter.

Finally, the improved cost profile and efficiency level of the bank contributed to theimproved profitability base and margins recorded in the quarter, we remained optimistic

that the bank will sustain this trend and reward investors handsomely in the comingperiods as the banks shares outstanding remained manageable.

The expected business combination with Finbank Plc may well prove to be a game changerfor the companys fortunes and it will be necessary for the company to provide clearerdetails of the benefits or/and synergy driving the merger.


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FCMB Equity Report - July 2011

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