The Bank’s holding company has also been a subject of
shareholder squabbles, which ordinarily should be a distraction to the
management and a drag on profitability. But in spite of these challenges, the
outstanding results are a testimony to the depth of its management and its
capacity to execute a robust strategy.
What is Unique About FirstBank? (Late Entrant to
African Markets) As a late entrant into the scramble for market share in the
Sub-Saharan African continent, it was able to play catch up with its peers in
this respect. In the last few years, FirstBank has been able to expand its
international footprints not only across Africa but also in Europe and Asia
with branches in the major markets of the United Kingdom, China, and Ghana.
The core element of the bank’s strategy has been to leverage
its huge investment in its Internet banking platforms with a fast transition
into the digital space. Whilst its reputation as an old staid and orthodox bank
is being replaced as a nimble modernised institution with a readiness to
compete aggressively with its younger peers, FirstBank has not lost its legacy
as a strong and sound institution. Most of the performance ratios especially
its cost-to-income ratio of 46.8% coming down from a high of 70% four years ago
reveals that its cost reduction and resource optimization strategy is paying
off.
Leveraging Economies of Scale is a Core Strategy FirstBank
with 595 branches has 13% of all branches of banks and 13% of all Automated
Teller Machines (ATMs) in Nigeria. The bank has consistently leveraged
economies of scale, years of existence, and reputation, resulting in aggressive
customer acquisition.
With a customer base of over 42 million, FirstBank processes
12% of the Nigerian banking industry’s payment volume. The bank’s current
deposit portfolio of N9 trillion is one of the best in the Nigerian banking
industry. The group is also reaping the benefits of crossentities collaboration
as well as increased earnings contribution from international subsidiaries
(30.0% in FY’22 compared to 25.5% in FY’21).
Every Dog Has its Day in the SunTranslation Gains Have
Helped but Transaction Losses Could Hinder Growth Banks with long dollar
positions will have initial translation gains, however, if subsequently, they
begin to have non-performing dollar assets, the translation gains may end up as
transaction losses down the road. Nigeria’s oldest bank, FirstBank recorded a
revaluation loss of N98bn due to huge naira devaluation stoked by the Foreign
Exchange policy changes.
However, the impact on the bank’s profitability was
cushioned by over a 1,000% surge in fair value gains. FBNH’s exposure to
foreign currency risk was mitigated by a decline in foreign currency (FCY)
loans from 51.2% in FY’22 to 50.4% in Q1’23.
Strategy Consistency is Impacting Share Price Appreciation
The share price of FBNHoldings has increased by an average of 131% per annum in
two years to N18.65, returning enormous value to shareholders. The valuation
remains attractive with a price-earnings multiple of 2.55x and an estimated
fair value of N19.25. Earnings per share (EPS) at N5.19 Vs N1.55 in H1’22.
Are There Inherent Weaknesses?
FirstBank is poised to
keep creating value for shareholders with a reorganised balance sheet position
and a refocused management team. Though the impact of FX unification remains a
major concern to Nigerian banks’ profitability and liquidity, FBNHolding’s long
position in dollardenominated assets gives it an edge.
We also anticipate an increase in trading activities by the
bank in the event of a drop in the backlog of FX requests and an influx of new
foreign transactions. This could potentially drive-up trading volumes, increase
commissions earned on trades, as well as gains from FX sales. We expect the
bank to deliver an impressive full-year 2023 result.
A rising interest rate environment will boost net interest
margin, and solid e-banking operations will support strong non-interest income
growth. We also believe that the bank will be able to maintain a sound asset
quality position within the regulatory threshold thanks to its effective
operational and risk management system.
FBN Holdings Plc (FBNH) remains a top player in the industry
with a Strong franchise, reliable funding structure and brand recognition,
robust customer base, unique ebusiness and agency capabilities, contributions
from overseas subsidiaries, and a newly reorganised management team.
What Does the Future Hold Out for FBNHoldings?
In an industry where competitive pressures and the intensity
of rivalry increases, a consolidation is almost imminent. We expect that the
field will narrow after a possible increase in the minimum capital requirements
in the industry as impairment of profitability resulting from non-performing
loans begins to hurt industry players.
We also expect big and solid institutions like FBNHoldings
to be in a position to gobble the smaller and less viable rivals. The name of
the game in the next few years will be ‘’the survival of the fittest’’.
0 comments:
Post a Comment