Business
Investors swoop on Fidelity Banks stocks amidst Union Bank UK acquisition, 10k interim dividends
Okey Onyenweaku
A single investment decision could help focus attention on a brand and that is what Fidelity Bank’s decision to buy into Union Bank Plc has done for it.
However, Fidelity Bank was even before now arguably one of the strongest banks in the Nigerian banking space in terms of stability. This is corroborated by its half year results of 2022 that has just been made public. According to the details as gleaned by Business Hallmark, the bank posted profit before tax of N20.628billion, representing 72% per cent higher than N11.963billion it achieved in 2021.
The bank equally grew its Total Deposits by 13.1% Year To Date (YTD) to N2,290.1bn from N2,024.8bn in 2021FY, driven by double-digit growth in low-cost deposits.
Low-cost deposits increased by 26.1% YTD to N1,902.4bn and now represents 83.1% of total deposits from 74.5% in 2021FY, which explains the drop in funding cost.
“We are delighted with our H1 2022 performance which showed strong growth across key performance indices”, said Fidelity Bank’s CEO, Mrs. Nneka Onyeali-Ikpe of the performance.
“With improved efficiency and customer experience around our network, customer transactions have grown considerably as we optimize our balance sheet and build up a large stock of stable low-cost deposits.”
Gross Earnings increased by 37.9% YoY to N154.8bn on account of 52.9% growth in interest income to N136.2bn from N89.1bn in H1 2021.
The increase in Interest Income was driven by improved yield on earnings assets and 14.9% YTD expansion in earnings base to N2,546.5bn.
In the same vein, Net Interest Margin improved to 6.4% from 4.7% in 2021FY, due to a combination of improved yields on average earning assets and a decline in average funding cost.
Average yields on earning assets increased by 211bps YoY to 11.5% while average funding cost declined by 84bps to 4.0% YoY, which resulted in 50.4% growth in net interest income to N75.6bn.
The release of the half year results coincide with the bank’s recent announcement on expanding to the United Kingdom with its proposed purchase of Union Bank UK.
Commenting on the proposed acquisition, Onyeali-Ikpe said: “We recently executed a binding agreement for the acquisition of 100.0% equity stake in Union Bank UK Plc in line with our strategic objectives and business expansion drive.
“Union Bank UK offers a compelling synergy we hope to build on, to create a scalable and more sustaining service franchise that will support the wider ecosystem of our trade businesses and diaspora banking services.”
On the back of the positive H1 2022 performance, the board of fidelity bank approved an interim dividend of 10k per share, making it the first time the bank will pay an interim dividend in its 34years history.
Fidelity Bank Plc recorded 35.7% growth in Profit Before Tax for its 2021 financial year to close the year at N38.1bn at the close of business that year.
The bank grew Gross Earnings by 21.6% YoY (23.2% QoQ) to N250.8bn driven by a combination of 60.3% growth in non-interest revenue (NIR) and 15.2% increase in interest and similar income. The growth in NIR reflects the significant increase in customer transactions resulting in 84.9% growth in trade income, 48.1% in account maintenance charge, and 47.2% increase in digital banking income.
Nneka Onyeali-Ikpe, MD/CEO, Fidelity Bank Plc noted, “We closed the financial year with strong double-digit growth in profit and across key balance-sheet lines, which reflects the disciplined execution of our strategy and capacity to deliver superior returns to shareholders. Profit before tax grew by 35.7% to N38.1bn from N28.1bn in 2020FY, which translates to an increase in RoAE to 12.5% from 10.5% in 2020FY.”
Other areas of the financial result recorded significant increases in the period under review with total interest and similar income increasing by N26.8bn. Similarly, Total Deposits increased by 19.2% to N2.025tr from N1.699tr in 2020FY, Local currency deposits grew by 16.0% and account for 80.3% of Total Deposits while foreign currency deposits increased by 33.9% and accounts for 19.7% of Total Deposits from 17.5% in 2020FY.
The clearly very ambitious bank which has set its sights on being a topmost performing banking brand in the country for a few years now, is paying a dividend of 35 kobo per share; totaling N10.14 billion to be paid to its shareholders for the full-year period ended December 2021.
This is no mean performance in a volatile environment like that of Nigeria.
Tracing the banks growth trajectory in the past four years project optimism for its owners. It has grown its total assets by 114% from N1.719trillion in 2018 to N3.692trillion in 2021.
Its Profit before tax also jumped 58% from N13.010billion in 2018 to N20.628billion in 2021. Whereas operating profit rose 32% from N38.058billion in 2018 to N50.297billion in 2021, Net Asset per share eased up 35% from 695 kobo to 942kobo in the four years period.
FIDELITY BANK’S STRATEGIC FOCUS
Analysts believe Fielity Bank might achieve its target of becoming a tier 1 bank earlier than its projections of 2025. This is more so when it is spreading its tentacles beyond the shores of Africa through acquiring the Union Bank of UK. Also in pursuant of its tier 1 target, Fidelity Bank listed seven focus areas critical to achieving this objective namely: Accelerated Growth, Innovation Drive, Brand Refresh, Performance Discipline, Digital Transformation, Service Excellence and Workforce
Transformation.
Managing Director, High Cap Securities limited, Mr. David Adonri, told Business Hallmark that the new acquisition of the UK subsidiary of Union Bank was a win win for all stakeholders.
He said the development would give Fidelity Bank a foot hold in the second largest commercial capital of the world in addition to giving the bank a stronger image and opportunities in both domestic and outside.
According to him, since that announcement, investors have swooped in on the banks stocks to take position for better days ahead.
In fact, the bank’s stock has gained 11% from N3.06 on Friday 26, 2022 to N3.40 per share to N3.40 on September 2, 2022. Volume of shares traded have also increased to 28million shares as at Friday September 2, 2022 far more higher than the 1.381million traded a week earlier before the announcement of the acquisition of the UK subsidiary of Union Bank and the 10kobo interim dividend.
OPERATIONAL ENVIRONMENT
Notably, Fidelity achieved this impressive result despite that the Nigerian economy has not been strong lately and no immediate indications show otherwise. However, the economy recorded a growth of 3.5 per cent in half year 2022 from 3.11% in first quarter 2022.
The Q2 2022 growth rate decreased by 1.47 per cent points from 5.01 per cent growth rate recorded in Q2 2021 and increased by 0.44 per cent points relative to 3.11 per cent in Q1 2022,” NBS has just reported.
Recent statistics also reveal that the rate of unemployment, the second highest in the world is 35%; Underemployment rate stood at 22%; inflation which stood at 19.6 per cent; diaspora remittances inflow in the country is still recovering at $19bn in 2021 from $23.55billion in 2019; country spends about N5trillion on subsidy while hunger is expected to ravage the country given that terrorists have weaponized poverty in most areas of the Northern Nigeria.
Many have not forgotten that the operating environment last year was choking for almost all the business sectors including banks. In addition to the devastating effect of Covid-19 on the economy of which the 2021 budget runs a deficit of N6trillion, the country now owes N41trillion. The fear here is hinged on the fact that the federal government spends about 98 per cent of its revenue to service debts.
The major revenue earner for the country, crude oil price, which hovers between $98 pbd and $100 pbd as at August 2022 still fluctuates.
Insecurity has not only hobbled agriculture, many parts of the Northern part of Nigeria have been taken over by bandits that not much business activities can subsist.
With the fearful scenario above, the economic trajectory of the country is still uncertain.
This is because even the apex bank has warned that care must be taken to galvanize and push the economy out of slumber. The Apex regulator had reportedly warned its staff against unnecessary outings in Abuja, the capital of Nigeria for fear of kidnappers and bandits.
Fidelity Bank, which has some 250 branches domiciled in Africa’s largest economy was established in 1988.
