The tier-2 bank declared a N35 billion in profit after tax in the financial year ended December 2021, the highest in the company’s history. Year to date the share price is up 25% and up 47% in the last one year.
Subscribers to our Flagship Stock Select Newsletter will be up by 47% since we recommended this stock last June and up by 15% when we recommended it again in February.
According to its MD/CEO, the results was due to “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.”
The bank remains in contention as one of the most promising tier-2 banks in the country, having steadily grown profits by a compounded annual growth rate of 19%. It has also rewarded shareholders with a constant stream of dividends increasing last year’s dividend by 59% to 35 kobo per share.
At current prices, the dividend yield is still an impressive 10% making it one of the most attractive banking stocks on the Nigerian Exchange.
The bank was also able to grow its deposits from N1.69 trillion to N2 trillion another first in the bank’s history. Only tier-1 banks have more deposits than Fidelity Bank. It is also climbing in terms of net assets and was just N3 billion shy of crossing the N300 billion mark.
In terms of capital adequacy ratio, it remains strong at 15% with N231 billion in tier-1 capital and another N75.6 billion in tier-2 capital all massive improvements from 2020 when it was N204 billion and N39.6 billion respectively.
Despite these impressive fundamentals recorded in 2021, the bank has increased fees and commissions to thank for this year’s performance.
Decoupling its financial statements reveal an increase in commission and fees from N19.8 billion in 2020 to N29.4 billion in 2021. This helped bolster profits mitigating a reduction in net interest income that was hit by an industry-wide dip that affected nearly all banks.
Without a surge in fees income, foreign exchange gains and aggressive loan recoveries, the profit story may have been grim this year. Suffice to add that the same central bank that triggered an interest margin contraction via policy can also wield a similar stick on commissions.
There is still a lot of work to be done to get the bank to achieve its lofty ambitions of being one of the largest tier-2 banks and possibly get into tier-1 status. Its return on average equity of 12% is right within its 5-year average. Its cost to income ratio is still above 60% and will either need to improve income or massively cut down cost to be efficiently competitive.
To sustain this impressive performance, Fidelity Bank will need more than a strong performance from its fees and other income division to keep investors happy.
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