ISSN 1597 8842 Vol.1 No.

71

Dec 31, 2010 and Q1 2011 Results Review Issued on July 12, 2011

Contents

Executive Summary Fundamental Analysis

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

03 05

Technical Analysis
o The Stock Price Performance at the NSE

15 17

The Analyst Opinion

ISSN 1597 8842 Vol.1 No. 71

FCMB Equity Snapshot as at H1 2011

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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 sector with 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 the period.

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 negative trend 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 be contributory 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.

FCMB Equity Snapshot as at H1 2011

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2.

FUNDAMENTAL ANALYSIS

The Objective: To examine in a snapshot, the bank's financials and operations, especially earnings, growth potential, assets, debt, management, products, and competition through financial ratios arrived at by studying the balance sheet and profit & loss account over a number of years. This analysis is more effective in fulfilling long term growth objectives of shares, rather than their short term price fluctuations. In the Nigerian Stock Market, this has traditionally been the key focus of most players and it remains a guiding beacon as to what could possible happen to a stock. Our approach to fundamental analysis therefore takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data, the former of which was reviewed in section 2 above and the latter, a subject for review in section 3 below. The banking sector metrics below show the portraits of the sector based on the results announced so far.

GENERAL COMMENTS AND OBSERVATIONS

Earnings Profile
First City Monument Bank Plc sustained the impressive earnings position recorded in Q4, 2010 as the bank closed with leading gross earnings growth of 15.20% YoY performance as against the sector average of -7.35%,- a striking performance when compared with negative gross earnings growth recorded by tier-one banks.
https://www.proshareng.com/reports/view.php?id=3318

The gross earnings closed at N16.63 billion against N14.43 billion recorded in Q1, 2010 and we observed that the active position of earning assets which gave boost to interest income and the growth recorded in commissions coupled with moderate growth witnessed in other income stream contributed to the gross earnings growth recorded.

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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 in Q1, 2010 when compared with 2009 year end figure. Similarly, the net interest income dipped significantly by -69.79% in Q1, 2011 when compared with figures recorded in Q4, 2010 while negative growth of -82.67% observed in previous year comparable period. We therefore call managements attention to this trend to put this under control. https://www.proshareng.com/reports/view.php?id=3381

Efficiency and Profitability

The bank sustained impressive profitability base, riding on the back of improved efficiency level recorded in the quarter which is in line with our expectation, considering the previous trend. 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

FCMB Equity Snapshot as at H1 2011

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The banks profit closed with leading percentage growth of 194.72% (YoY), far above the sector average of 33.04% at time of preparing this report. The growth outperformed most of the sector giants, particularly the tier-one banks with average PAT growth of 65.54% in Q1, 2011. FCMB Plc recorded N16.63 billion as against N2.66 billion recorded in Q1, 2010. The active contribution recorded from major income components (non-interest income and interest income) 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), we believed that the provision of N0.5 billion for loss contributed to this while the low performance recorded in operating profit despite improved operating efficiency as we have cautiously noted above impacted the negative performance. Nevertheless, the profitability position has increased the returns on Equity and Assets base of the bank while the earnings per share benefited immensely- an indication that the bank maintained strong commitment towards adding values to investors stake, despite the hitch in the sector.

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More impressively, on the back of strong profitability and improved cost efficiency, the EPS recorded positive growth of 4.8% YonY and 1.6% QonQ while the ROA and ROE closed with 0.45% and 1.94% positive growth respectively on quarterly performance outlook.

Also, the improved outlook on operating expenses gave support to the improved efficiency mentioned above. The operating expenses dropped by -74% QonQ to close at N8.04 billion 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 and quarterly outlook to buttress our above assertion on cost efficiency- this further reveals effectiveness of cost management strategies employed by the management during the period.

Margin Growth and Performances

The bank maintained positive margins as both net interest margin and PAT margin closed positive buoyed by impressive profitability position and improved cost profile, indicating well 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 2010 boosted by the active position of earnings assets which contributed immensely to interest income by 64% positive growth. https://www.proshareng.com/reports/view.php?id=3381. Also, PBT and PAT margin closed at 21% and 16% above 14% and 13% recorded in Q4, 2010 respectively.

However, we hope the management will sustain the improved cost outlook to boost profitability and margins further as we remained optimistic towards improved performance in the coming periods while a proper attention to the bloated LDR will create more rooms for loan growth.

Assets Quality Review

The bank closed with improved net assets by 5% (YonY) but witnessed lower performance to 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 with 25% positive growth when compared with total assets recorded in the previous comparable period.- this is commendable as the assets base is averagely liquidity for short term needs which also reveals the liquidity advantage.
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We observed that the moderate growth in deposit and loans and advances gave support to this 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 deposit to asset ratio closed lower at 57.46% as against 62.17% recorded in Dec 2010 which reveals 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 the decline 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 management to address the high LDR for loan growth.

However, we commend the improved outlook of nonperforming loans as the NPL ratio closed lower at 5.29% against 8% recorded in the Q1, 2010 while it outperformed the 5.52% recorded in Q4, 2010- an indication of healthy and quality assets base, though another 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 N22.96 billion recorded in Q1 2011 while it also closed above the N19.29 recorded in Q4, 2010. A commendable improvement when compared with N28.39 billion recorded in Q2, 2010. The sale of nonperforming loans contributed immensely to this trend while transaction under the phase II is expected to further reduce the NPL in coming periods.
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Liquidity & Shareholders Position

The liquidity position of the bank experienced a decline when compared the outlook with the previous year comparable period- a falling trend as the outlook in the previous year revealed, which further suggests a signal to liquidity pressure as buttressed by blouted LDR of 99.81% and reduced performance of CAR. Although, the liquidity position of the bank 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 marginally lower at 31.7%. The weak performance of deposit gowth observed in the quarter could be partly 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 with reduced 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 we advise the management of the bank to make this a priority to put this under control by reinvigorate strategy towards deposit mobilisation.

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Nevertheless, the bank sustained positive growth with shareholders fund by 5%(YoY) in Q1,2011 as against a lower outlook of 4% (YoY) recorded in Q4, 2010-this could be traced to growing profitabiiity base and improved margin position.

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

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Technical Analysis Review MOST RECENT STOCK PERFORMANCE OF FIRST CITY MONUMENT BANK SHARES

First City Monument Bank Plc in the last eighteen months January 4th, 2010 to July 8th, 2011, the bank share price recorded -1.57% depreciations to close at N6.90 from N7.01 it closed at the end of January 4th, 2010 trading session. With this trend, FCMB Plc has decreased in value marginally. In the year 2010 alone, the share price of the bank closed with +6.99% appreciation, as against +18.87% appreciations recorded in the entire market in the period. This positive performance showed that the bank is marginally recovered in the period under review after the general bearish trend of the market in 2009 coupled with the shake up in the banking sector from August 14th, 2009. However, the year to date performance as at July 08, 2011 stood at -8.00% while market performance also closed negative at -3.16% THE ASI AND FCMB PLC The All-Share Index and FCMB Plc share price experienced series of volatility as they traded sideways. However, FCMB share recorded low performance in the year 2010 as ASI 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%.

FCMB Equity Snapshot as at H1 2011

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As illustrated from the graph below, FCMB Plc traded below its 20days, 50days and 200days moving averages of N7.25, N7.42, and N7.29 respectively.

Technically, FCMB Plc share is trading below its 20days, 50days and 200days moving averages seem to suggest bearish outlook in short and long term.

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Analyst Opinion
The bank recorded impressive ratios in the last two quarters, both top-line and bottomline closed impressively with significant growth- a leading bottom-line growth in the quarter among the sector giants. Also, the margins and EPS benefited from this outlook while the returns on both assets and equity sustained the uptrend, the interest income and non-interest income contributed 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 loan book 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 liquidity and 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 emerging opportunities in the near term despite reasonable portion of liquid assets in the balance sheet. On the contrary, we commend the improved performance witnessed on NPL of the bankan indication of strong commitment towards assets quality. Nevertheless, we advise the bank to improve more on assets quality and risk management of the bank as we noticed loan loss provision during the quarter. Finally, the improved cost profile and efficiency level of the bank contributed to the improved profitability base and margins recorded in the quarter, we remained optimistic that the bank will sustain this trend and reward investors handsomely in the coming periods as the banks shares outstanding remained manageable. The expected business combination with Finbank Plc may well prove to be a game changer for the companys fortunes and it will be necessary for the company to provide clearer details of the benefits or/and synergy driving the merger.

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