First Bank Holdings Plc (FBN) seem to have shrug off poor earnings streak as analysts at CSL Research Limited have revised their ratings of the lender from hold to buy on the back of better economic conditions.
The investment house said they arrived at the decision after the relative stability of the Naira, increased oil production from the repair of major pipelines, relative calm in the Niger Delta, oil price stability, and expectations of a write back by the bank’s management.
FBN Holdings was hard hit by rising impairment charges and battered asset quality caused by a volatile and tough operating environment as customers were unable to pay interest on money borrowed from banks.
For the first three months through March 2017, the Nigerian lender recorded 22.08 per cent drop in net income to N16.14 billion on the back of a 125.98 per cent rise in impairment charge on financial assets to N28.82 billion.
Non-Performing Loans (NPLs) jumped to 26.52 per cent in March 2017 from 21.50 per cent the previous year.
FBN’s favourable performance was slightly dented as (ROaE) decreased to 10.90 per cent in the period under review from 14.40 per cent the previous year, indicating a decline in management’s ability to deploy the resources of its owners in generating higher profit.
“However, given expectations of improving asset quality, we have increased our long term ROE forecast resulting in an increase in our price target to N9.60/s from N5.48/s previously and we upgrade our recommendation from Hold to Buy,” said CSL Update Note on FBN.
“Our new Price Target implies 57 per cent upside from closing price of N6.12/s (Price as at July 3).”
The bank’s share price closed at N6.05 at the NSE on Wednesday, valuing the lender at N217.17 billion. Year to Date Return (YTD) stood at 81.79 per cent, outperforming the NSE ASI index of 20.17 per cent.
Other banks in Africa’s most populous country also felt the pinch of a weak naira, rising inflation and shortages of dollars as the cumulative loan loss expenses of the 14 banks quoted on the floor of the NSE increased by 54.23 per cent to N96.22 billion as at March 2017.
There has been improvement in liquidity since the central bank introduced the window for foreign portfolio investors. In other words, the relative calm in the Niger Delta region has resulted in improvement in oil production volumes.
The International Monetary Fund (IMF) raised its growth projections for the Nigeria’s economy to 0.8 per cent this year, sighting favourable economic conditions.
This signals that companies and individuals should have sufficient capacity to repay loans borrowed from banks, especially the oil majors, going forward.
“When the economy recovers the impairment charges is likely to go down,” said Johnson Chukwu, managing director of Cowry Asset management Limited. “We are going to see delinquency been worked out as the economy recovers.”