First National Bank Namibia’s interim results indicates a decline of Returns on Equity to 23.3% in 1HFY18 compared to PSG Namibia’s forecasted ROE for FY18 at 22.7%.
The financials also show a decrease in the return on Assets to 2.8% in 1HFY18 in line with forecasts.
Credit loss and non-performing loan ratios deteriorated as well in line with forecasts while growth in Net Interest income slowed to 2.2% compared to PSG’s forecast of 9.1% for FY18.
“The expectation has been and remains for a slower FY18 and this trend is confirmed in the bottom line of 1HFY18 figures,” says PSG.
The firm says income surprised on the upside in certain instances (non-interest revenue growing by 12.8% vs PSG forecast of 6.4% due to an increase in active accounts), however, the upside surprise in expenditure was also larger (opex growth of 20.5% vs PSG forecast of 8.2%).
Some of the noteworthy areas in the bank’s performance as picked out by PSG are that of interest income having grown by 12.0% (against a forecast of 8.0% for FY18).
“But margins were squeezed by interest expenditure growth of 24.2% (our forecast is 6.8% for FY18) over the period,” says PSG.
The cost-to-income ratio jumped to 52.1% in 1HFY18 (against a forecast of 49.3% for FY18) compared to 46.3% in 1HFY17.
FNB’s non-performing loans increased by 80% from 1HFY17 and the NPL-to-average gross advances ratio has deteriorated from 1.0% at 1HFY17 to 1.7% in line with our forecast.
“The most notable areas of advances growth were in card loans and overdrafts, and less so in home and term loans, illustrating the strain on the consumer,” the firm adds.
Commenting on whether the company’s outlook has changed or not, PSG says, “Management reiterated that they will continue to invest as necessary in modernising their systems and delivery channels with the long-term view of sustainable growth. FNB expect an uptick in the Namibian economy, driven by a strong Namibian Dollar, increases in commodity prices, better rainfall and more liquidity due to the loan from African Development Bank as well as from foreign direct investment.”
Given this performance, how will investors react?
PSG submits that the expected increased cost of funding is a challenge, but the increase in active accounts and growth in corporate credit bodes well for better results in the second half of the financial year.
“The first half of FY17 was much better than the second and this base-effect also has to be taken into account when reviewing the growth figures. The dividend yield (DY) has increased slightly from 3.8% in 1HFY17 to 3.9% in 1HFY18, due to price movement. The P/E ratio has increased from 11.0 at FY17 end to 11.7 at 1HFY18.”
“Our forecast is for a DY of 4.4% and P/E of 10.9 at FY18 end. We have revised down our 12-month price target to 4984cps and our recommendation remains Hold,” the firm adds.
PSG analyst have revised their FY18 forecast for interest income growth up to 9.2% from 8.0% for FY18 previously, based on the 12.0% growth recorded for 1HFY18.
Their forecast for operating expenditure for FY18 has been lifted to 15.1% from 8.2%.
The cost cost-to-income ratio has also ben revised up from 53.5% for FY18 to 54.8%.
“1HFY18 cost-to-income came in at 54.4%. Hence, we now forecast for Net Profit to be lower by 6.1% for the full year compared to our previous forecast of -0.4%. 1HFY18 net profit was down by 12.31%,” says PSG.