FBN Holdings: 2015 financial results – Matters arising (An analysis)

FBN Holdings Plc’s 2015 financial results recently released by the Nigerian Stock Exchange (NSE) have elicited fresh market sentiments which may further impact on the financial institution.
Meanwhile, the 15 kobo dividend proposed by the company, against 10 kobo and a bonus share of one for 10, analysts have said appear good going by the company’s equity price, but falls short of expectations as company housing tier one bank.
The development, it has been learnt, would fire the company’s shareholders reactions, on May 26, 2016, at its forthcoming third Annual General Meeting (AGM) scheduled to hold in Lagos.
However, a cross section of market analysts have expressed the need for downward review of the company’s 2016 earlier projection, based on the over 81 per cent decline in the company’s 2015 earnings as contained in the published result, as well as the Q1 2016 result , which falls below most analysts’ expectations.
At the forth coming AGM, shareholders of the company would also have the privilege of raising issues on the way forward and also approve dividend payment of 15 kobo per share for each shareholder whose name appears in the company’s register as at the date of closure of register on May 9, 2015. Subsequent to shareholders’ approval, dividend payment will be on May 30, four days after approval has been secured.
FBN Holdings Plc., with the recent release of its 2015 financial year results and the first quarter (Q1) 2016 result, set the pace for renewed market sentiment which would prevail over a period of time, to climax on May 26 when the company has scheduled to hold its Annual General Meeting (AGM).
The suspense over delayed submission of the company’s result, corporate actions and the 2016 Q1 results have been laid to rest with the latest developments. However, discussion on the company’s performance and dividend proposed, continues to trend in the capital market community and the social media. This however is helping to shape investors’ level of commitment to the company’s equities.
FBN Holdings Plc 2015 financial year result and the first quarter(Q1) 2016 results which were released to the Nigerian Stock Exchange (NSE) on the same day , April 26, 2016, was affected, following the earlier profit warning by the Holding company.
The 2015 financial year result of the company showed that revenue grew to N505.19 billion, against N481.77 billion recorded in 2014, while profit after tax declined by over 80 per cent to N15.15 billion from N84.01 billion posted in the 2014 financial year.
The first quarter 2016 result followed the same trend, as revenue declined to N83.46 billion, from N95.31 billion posted in the corresponding period of 2015. Profit after tax for the period also declined to N20.72 billion, from N22.60 billion recorded in the first quarter of 2015.
Before the recent release of FBNH results, even as other banks had concluded their AGMs, many stakeholders were keen to know the performance of FBNHoldings Plc, and why the result which usually comes in early, started coming late.
While FBNH is proposing 15 kobo dividend, GTBank has paid 152 kobo dividend, UBA paid 40 kobo dividend, Zenith Bank paid 155 Kobo dividend , Access Bank paid 30 Kobo, Fidelity Bank had also paid 16 kobo dividend per share while Sterling Bank and FCMB had paid 9 kobo and 10 kobo dividend respectively.
This prompted a question recently by a stakeholder “Has the decision of shareholders of FBN Holdings Plc to opt for Holding company structure, against unbundling its subsidiaries, been rewarding or inimical to the company, shareholders and its stakeholders?”
In trying to garner answer to the above question, it found out that irrespective of the poor results, prevailing low equity price of FBNHoldings in the securities exchange market, cross section of investors and stakeholders maintained that the company now more than ever before provides the best investment opportunity for investors who crave for quality investment, value, transparency and returns on investments.
The stakeholders maintained that Holding company structure being new in Nigeria generated the kind of market hearsay and policy trust which impacted negatively on FBNH in the equity market. The challenge, however it has been gathered, is about to be resolved with the pension funds, the biggest individual investor in the country’s capital market.
With the price of the entire Holding company plummeting to N3.00 per share as at the close of trade on March 30, 2016, while First Bank Plc shares, (subsidiary of the group) before assuming Holding company status in 2010 oscillated between N14.00 to N18.00 per share over a long period, analysts maintain that the best time to buy into FBNHoldings is now, as investors are guaranteed of over 500 per cent boost in equity price in a short to medium term.
Recalling the downward trajectory of FBN’s equity price movement, it would be recalled that as at 9th July 2008, First Bank of Nigeria Plc shares sold at N41.96 per share, Guaranty Trust Bank sold at N26.90 per share, Zenith bank sold at N41.99 per share, while UBA sold at N31.55 per share.
Following the devastating impact of global financial meltdown in the Nigerian market as well as the banking sector crisis, the four banks opened the 2010 financial year at depressed equity prices which many of the banks have sustained or surpassed till date.
First Bank opened 2010 financial year at N14.05 per share, GTBank at N15.50, Zenith Bank N13 60, while UBA opened the year at N10.80 per share. However, at the close of trade on Wednesday March 30th, 2016, Zenith Bank closed at N10.96 per share, GT Bank closed trade at N14.48 per share, while UBA closed trade at the rate of N3.23 per share. Africa Prudential Registrars Plc (Offshoot of UBA) closed at N2.28 per share.
On September 08th, 2010, the CBN in compliance with the statutory provisions of the Banks and Other Financial Institutions Act (BOFIA) regarding the conduct of banking business announced conclusion of review of the universal banking model in Nigeria and issued new rules, guidelines for a new licensing regime.
The new guidelines included the regulation on scope of Banking Business. This repeals the universal banking regime and requires banks to divest from all non-banking business as the guideline defines the new types of banking licenses, permitted activities and transition timelines for restructuring.
In view of the development, CBN discontinued issuance of universal banking licenses, prohibited banks from undertaking non-banking activities while new licenses were issued to banks to perform commercial banking (regional, national and international); merchant banking; specialized banking (microfinance, mortgage, non interest (regional and national) and development financial institutions).
GTBank, Zenith Bank and UBA divested from their non banking subsidiaries and adopted a commercial banking structure. UBA went a step further by not just divesting from their subsidiaries but ensured that existing shareholders were given share allocation s in the divested companies which were later listed on the Nigerian Stock Exchange (NSE), thus expanding shareholders income base.
However, First Bank opted for holding company structure. The subsidiaries are, First Bank of Nigeria Limited (First Bank), FBN Capital Limited, FBN Life Assurance (FBNInsurance) and FBN Microfinance Bank limited, as well as the latest entry, FBN Merchant Bank Ltd (formerly Kakawa Discount House) 100 per cent FBNH ownership.
It would be noted that in the course of adopting a Holding company status, First Bank Plc divested fully from its profitable investment in First Registrars Limited.
Few Tier one banks performances show that at the close of trade on Wednesday March 30th, 2016: Zenith Bank with 31,396,493,786 shares outstanding and market capitalisation of N 344,105,571,894.56, closed at N10.96 per share.
GT Bank as at March 30th 2016 had 29,431,179,224 shares outstanding and market capitalization of N 426,163,475,163.52 as it closed trade at N14.48 per share.
UBA as at the same date had 36,279,526,322 shares outstanding and market capitalization of N117, 182,870,020.06 as it closed trade at the rate of N3.23 per share. Africa Prudential Registrars Plc (Offshoot of UBA) closed at N2.28 per share, with share outstanding of 2,000,000,000 and market capitalization of N 4,560,000,000.00.
However, FBNH on March 30th, 2016 closed trade at N3.00 per share, with 35,895,292,792 shares outstanding, and market capitalisation of N107,685,878,376.00.
Looking at the four scenarios, should one conclude that the Holding company structure has favoured the company and its shareholders?
With the new leadership of the FBNHoldings, the company is set to attain new heights in equity
pricing, earnings, financial performance and returns on investments among other qualities that qualified FBNH to rank first in the industry.
Dr. Oba Otudeko, Group Chairman, FBN Holdings, announcing the new officers of the Holding company late in 2015 said that reaching the choice of members of the new management team, the company was mindful of the imperatives for a more efficient group structure that will benefit the Group’s need to deploy systems which deepen efficiency while expanding revenue and returns on investment.
“We are confident that we have made the right choices in these appointees. In selecting our MD and DMD we were particularly mindful to identify outstanding and top-notch professionals with complementary and mutually reinforcing skill sets.”
Mr. Abiodun James, of Pivot Trust & Investment Company limited, said FBNHoldings PLC sill provides ample opportunities for investors and that remaining a holding company gives unique advantages too. “They don’t want to unbundle, like having different names” he said.
“If you look at FBN holdings, at a point some of their directors left to Standard Chartered bank, some of their good hands left them so they have to bring in new set of good hands again”
Alebiowo said that First Bank, unlike when it was an independent company, now has to take permission from the holding company board before taking certain decisions, against the practice in other banks that are purely commercial banks, not entrenched in a holding company structure.
According to him, the challenge FBNHolding is facing in the market is partly driven by departure of some of the company’s good hands and none investment of pension funds in the company , hence by the Pension funds rule, the retirees funds are invested only in companies that have sustained dividend payment for five years and above .
However, he noted that with the pedigree of FBN, lack of investment by pension funds should not have caused such degree of depression in its equity price rating, a situation he said, provides more investment opportunities, but was caused by lack of proper understanding of Holding company structure in the country.