pac capital equity research_firstbank.pdf

7/29/2019 PAC CAPITAL EQUITY RESEARCH_FIRSTBANK.pdf

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BUY Fair Value = N 12.43 October, 2011

1 | P a g e F I R S T B a n k P l c I O c t o b e r , 2 0 1 1

Company/Equity Research Report

FIRST BANK PLC:The Most Diversified Financial Conglomerate in Nigeria.

Company BackgroundFirst Bank is the first major financial institution founded in Nigeria;

hence the name. The bank was incorporated in August 1964, and

listed on the floor of Nigerian Stock Exchange in March, 1971. First

Bank Plc is a leading Nigerian Bank with a corporate banking base

and strong service culture that has led to consistent year on year

growth in the banks clientele base and financial indicators.

Bank Products and Services

First Bank of Nigeria as popularly called is a household name in

banking sector in Nigeria. The bank provides a full range of

commercial, investment and retail banking products/services to its

discerning corporate, commercial and retail customers. The bank is

well diversified through its subsidiaries in the capital market

operations, insurance services, asset management, private

equities/venture capital, pension fund custodian management,

registrar services, trusteeship, mortgage and microfinance banking.

Planned Activities

Directors of First Bank Plc have disclosed their plans to further

consolidate the banks footprint in Nigeria and diversify its assets.

Over the long term, international expansion becomes a priority and

has commenced this via carefully considered plan to establishing its

banking franchise in priority nations. The bank also revealed itsstrategic vision to be centered on key areas of growth within the Sub

Saharan Africa economy, improving the groups products and services

and upholding operational competence.

Table 4: Banking Subsidiaries of First Bank Plc (Offshore)

S/N Name Country

Year of

Establishment

1 FBN (London) Limited UK 2002

2 FBN (Paris) Limited France 2007

3 FBN (Johannesburg) Ltd S/Africa 2004

4 FBN (Beijing) Limited China 2009

5 banque intl de credit Congo 2011Source: First Bank Annual Report

Industry Status of First Bank Plc

FirstBank has an unlisted Global Depository Receipt (GDR)

programme. Till date, and despite the downturn in the stock market,

the Bank remains the most capitalised stock in the banking industry

on the floor of The Nigerian Stock Exchange (NSE). First Bank has ten

(10) subsidiary companies in Nigeria and five (5) international

banking subsidiaries which provide a comprehensive range of retail

and corporate financial services. First Bank clinched the 2010 Top

1000 World Banks ranking where the bank was ranked first among

other Nigerian banks by Financial Times of London. In further

evidence of the Banks strength, two foremost international risk-

rating agencies, Standard and Poors (S&P) and Fitch, have rated the

Bank highly. In line with CBNs guidelines, First Bank has announced

its intention to adopt a Holding Company structure to manage the

bank and its subsidiaries.

Company ProfileEquity Identity FIRST BANK

Sector Banking

Head Office Location Marina, Lagos.

Branch Network 611

Date of Incorporation 15th August, 1964

Date of Listing Match,1971

Year High (20/01/2011) N 16.12

Year Low (27/9/2011) N 8.50

Year End December 31st

Trading Price N 10.00

Current EPS N 0.83Outstanding Shares 32,632,084,358

Table 1: Operating Results for the year ended 31 December, 2010.

Financial YearFY-

DEC,2010FY-

DEC,2009

%Gain FY-2011E*/Loss

N'Billion

N'Billion

N'Billion

Gross earnings 230.606 193.966 18.89 245.826

Profit BeforeTax

43.188 13.297 224.80 48.293

Taxation -9.777 -8.396 16.45 (10.468)

Profit After Tax 33.411 4.901 581.72 37.825

EPS(N) 0.83 0.11 654.55 1.16

DPS(N) 0.60 0.10 500.00 0.60

Source: First Bank Plc 2010 Annual Report, PAC Research Estimates

Table 2: First Bank Plcs Third Quarter Results for Sept. 2011.

Financial YearQ3-

SEPT,2011Q3-

SEPT,2010%

Gain/Loss

N'Billion

N'Billion

Gross Earnings 211.166 177.065 19.26

Profit Before Tax 49.017 40.703 20.43

Taxation (6.127) (8.141) (24.74)

Profit After Tax 42.890 32.562 31.72

Source: First Bank Quarterly Results, PAC Research Estimates

Table 3: Non Banking Subsidiaries of First Bank

S/N Subsidiary

Nature of

Business Holding (%)

1 First Pension Nig. Ltd PFA 100

2 First Registrars Limited Registrar Services 100

3 First Trustees Nig. Ltd Trusteeship 1004 FBN Mortgages Limited Mortgage 100

5 First Funds Limited Private Equity 100

6 FBN Microfinance Bank Ltd MFB 100

7 FBN Life Assurance Ltd Insurance 65

8 FBN Insurance Brokers Ltd Insurance 100

9 FBN Bureau de Change Ltd Bureau de Change 100

10 FBN Capital Limited Capital Market 100Source:First Bank Publication


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PanAfrican Research


Figure 1: Relative Performance ofFIRST BANK Plc Share Price to NSE All-Share Index over a Year

Source: NSE, PAC Capital Research Estimates

First Bank Plc underperformed the NSE All-share Index during theperiod under review as shown in figure 1 above. The trend shows that

the stock was moving along with the market (NSE Index) and reached

its peak in January 20, 2011 at about N16.12.

Return on Earnings (ROE) of First Bank of Nigeria Plc appreciated from

6.86 per cent in the year ended 31 Dec, 2009 to 18.73 per cent in the

corresponding period of 2010. However, the ROE of 18.73 per cent of

First Bank is very competitive in the industry. The growth is

attributable to the high premium the bank pays on business line

expansion.

Net Profit Margin (NPM) of First Bank Plc witnessed an astronomical

percentage growth rate of 14.49 in the year ended 31 Dec 2010from

2.53 in the same period of 2009. This is a bit below the peer average of

15.66 per cent which shows that the bank is one of the most profitable

and competitive in the industry.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

FIRST BANK NSE Index

Table5: Earnings, Dividend, Bonus History and their 2011 Forecasts

Year 2011E* 2010 2009

(DEC)

2009

(MAR)

2008 2007

EPS(N)

1.16 0.83 0.11 1.41 2.23 1.56

DPS(N)

0.60 0.60 0.10 n/a 1.20 1.00

Bonus 1 for 6 1 for 8 1 for 6 n/a 1 for 4 1 for 6

Source: First Bank Annual Report

E* = Forecast (Expected Value)

Figure 2: Total Assets of First Bank over Five Years (Nb)

Source: First Bank Annual Report, PAC Research Estimates

Figure 3: Earnings per Share History over Five Accounting Periods

Source: FirstBanks Annual Report, PAC Research Estimates

0.763

1.165

1.6671.77

1.957

0

0.5

1

1.5

2

2.5

2007 2008 2009(Mar) 2009(Dec) 2010

Total Assets of First Bank over five years(bn)

0 0.5 1 1.5 2 2.5

2007

2008

2009(Mar)

2009(Dec)

2010

1.56

2.23

1.41

0.11

0.83

Earnings per Share History of First Bank

Table 6: Industry Analysis of some banks in the Banking Sector

Company GrossEarnings

Profit BeforeTax

Profit AfterTax

Net ProfitMargin

Return onEarnings EPS P/E Ratio

N'Billion N'Billion N'Billion N

First Bank Plc230.606 43.188 33.411 14.49 18.73 0.83 7.98

Zenith Bank Plc169.370 42.957 33.335 19.68 25.36 1.49 8.60

GT Bank Plc

138.347 45.475 36.512 26.39 32.87 1.50 9.00UBA Plc157.666 3.693 2.167 1.37 2.34 0.09 38.22

Access Bank Plc79.065 17.669 12.931 16.35 22.35 0.63 7.94

Source: Annual Reports of First Bank, Zenith Bank, GT Bank, UBA Plc, and Access Bank Plc


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PanAfrican Research


Contacts:For enquiries, please contact our offices:

Lagos: 8A, Elsie Femi Pearse, Off Adeola Odeku, Victoria Island, Lagos.

Tel: 01-2718630

Abuja: 16 Adetokunbo Ademola Crescent Wuse, Zone 2 Abuja.

Tel: +234 (0) 702 939 0541

Port Harcourt: Kabiat Plaza, Plot 69, Stadium Road, Rivers.

Tel: +234 (0) 702 940 5992

Onitsha: 4, Ridge Road, G.R.A., Onitsha, Anambra State

Tel: +234 (0) 702 939 054This report is produced by PanAfrican Capital Markets Plc as a guide for clients that intend to invest in Securities on the basis of their own investment decision without relying completely on the

information contained herein. No responsibility or liability is accepted for error of fact or any opinion expressed herein

INVESTMENT BANKING| SECURITIES TRADING | ASSET MGT. | STRUCTURED FINANCE | REGISTRAR SERVICESFor further enquiries, please call Lanre Bakare on +234 702 939 0488 or Wale Alabi on +234 702 939 0490 or Innocent Nwani on +234 702 939 0525

Figure 4:Metastock Showing Trend Analysis of FIRST BANK Share Price over One Year

Source: Metastock

Performance Analysis

The applauded growth of the bank is currently being appreciated by

all stakeholders. The full year results of First Bank Plc for the period

ended 31st December, 2010 indicates that its Gross earnings grew by

18.89 per cent to N230.606 bn, compared with N193.966 bn inparallel period of 2009 (Table 1). The Profit after Tax surged by

581.72 per cent at the end of the year 2010 to N33.411bn from

N4.901 bn in the corresponding period of 2009. Clear evidence of

improvements in the key performance indicators confirm that the

banks commitment to return value to shareholders is on a

sustainable basis.

Technical Analysis

Metastock technical analysis: Using the Bollinger Bands as an

indicatorof price direction, we observe that the recent price action ofFIRST BANK around the bands compared to the action of Relative

Strength Index does not present any probability of failure at this time.

The Bollinger Bands are 9.40 percent narrower than normal. This

suggests low volatility as compared to FIRST BANKs normal range. The

recent price action around the bands compared to the action of

Relative Strength Index does not suggest robust trading opportunities

in the near-term.

In our application ofRelative Strength Index (RSI) as an indicator of

price direction, we observe that the RSI is not currently in a topping

(above 70) or bottoming (below 30) range. It is not currently showing

any failure swings. This indicates that, it is neither overbought nor

oversold. The lastRSIsignal (13 periods ago), was a BUY.

Analysis, Valuation and Recommendation

The Banks plans to further consolidate its footprint

within and outside Nigeria and diversify its assets will

increase liquidity in the bank and that could translate into

a thrilling dividend payment to investors. The bank made

N42.890 billion PAT in Q3 2011 which we expect to

recline at N37.825 billion PAT in FY 2011 higher than

N33.411 billion PAT made in FY 2010. Return on Earnings

(ROE) and Net profit Margin (NPM) of First Bank are very

competitive as they are higher than the industry

averages. Taking into cognizance the present challenges

in the banking sector, we stay by our forecast (E*) in

table 1 and table 5. We arrived at an intrinsic value of

N12.43 as a result of simple average of several valuationmethodologies. We recommendBUYfor the stock at the

current market price for investors to harvest the

perceived rewards.

pac capital equity research_firstbank.pdf

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