BOURSE SECURITIES LIMITED
23rd December, 2019.
FCI, FIRST Advance
This week, we at Bourse review the year-end financial performance of commercial banks, FirstCaribbean International Bank Limited (FCI) and First Citizens Bank Limited (FIRST). Both banks reported positive earnings growth, supported by differing factors. We discuss the performance of both companies and provide a brief outlook.
FirstCaribbean International Bank Limited (FCI)
FirstCaribbean International Bank Limited (FCI) reported Earnings per Share (EPS) of TT$0.704 for the year ended 31st October, 2019, an improvement of 72.1% compared to an EPS of TT$0.409 recorded in the same period last year. This, however, was as a result of significant provisions related to the Barbados debt restructuring incurred in FY2018 which negatively impacted prior-year earnings.
FCI generated Total Revenue of TT$4.13B for the period, up 6.0% or TT$232.1M year-on-year (YoY). Operating Expenses increased by TT$114.1M or 4.4% YoY, from TT$2.57B in FY 2018 to TT$2.68B in FY 2019. Credit Loss Impairment experienced a fall of 96.4% moving from TT$681.9M in FY 2018 to TT$24.4M in FY 2019. Resultantly, Income before Taxes improved a significant 120.2% YoY to TT$1.42B, from TT$645.0M. However, Income Tax Expenses also swung from a net credit of TT$30.5M to an expense of TT$278.0M. Overall, Net Income for the Period recorded relatively strong growth moving from TT$675.5M in FY 2018 to TT$1.14B in FY 2019, for a YoY increase of 69.1%. It should be noted that adjusted FY2018 Net Income was $1.07B, in which case Net Income actually increased 7.2% YoY.
FCI’s Total Revenue continues to grow, climbing over the last three years at a Compounded Annual Growth Rate(CAGR) of 4.82%. FCI’s Total Revenue stream is broadly divided into two categories, Net Interest Income and Operating Income, with the former being the primary contributor at an average of 70% of total revenue.
Over the past three years, Net Interest Income has grown 15.2%, sustained by continued growth in its performing loan portfolio which in FY 2019 alone grew 7% YoY. Whilst Operating Income, generated from Wealth Management and other operations has grown 16.0% YoY.
CIBC makes an exit
Canada-based CIBC announced in November 2019 that a majority ownership position of 66.73% interest in FCI would be sold to GNB Financial Group Limited (GNB), a company domiciled in the Cayman Islands and ultimately part of the Gilinski Group. GNB is acquiring the position at a cost of US$797M, placing the value of FCI at approximately US$1.195B (TT$8.01B) or roughly TT$5.08 per share.
The transaction is anticipated to be concluded in 2020, subject customary closing conditions and regulatory approvals.
The acquisition by GNB is expected to trigger take-over bid rules in Trinidad and Tobago and Barbados, meaning that GNB should be making an offer to acquire shares from holders of the remaining 8.4% of FCI shares outside the control of CIBC.
The Bourse View
At a current price of $8.00, FCI trades at a trailing price-to-earnings ratio of 11.4 times, lower than the Banking sector average of 14.7 times. The stock currently offers investors a trailing dividend yield of 5.5% (4.2% exclusive of a special dividend payment of US$0.0159 paid on 5th July, 2019) which is above the sector average of 3.9%. Despite a relatively attractive dividend yield and consistent USD dividend payments, uncertainties relating to any potential Offer to acquire shares could weigh on investor confidence, given that the GNB-CIBC transaction was concluded at an equivalent price of TT$5.08, a discount of approximately 37% to the current market price. On this basis, Bourse maintains a NEUTRAL rating on FCI.
First Citizens Bank Limited (FIRST)
First Citizens Bank Limited (FIRST) reported Earnings per Share (EPS) of $2.98 for the year ended 30th September, 2019, a 11.6% improvement from the $2.67 recorded in FY 2018. Acquisition
Net Interest Income increased 4.8% Year on Year (YoY) to $1.63B in 2019, while Other Income improved 4.1% relative to FY 2018. Total Net Income recorded a marginal increase of 2.7% YoY to $2.28B. Total Expenses amounted to $1.23B, 0.7% higher than the previous year. Operating Profit improved 5.1% from $991.8M in FY 2018 to $1.04B in FY 2019. The Group recorded a Taxation Expense of $311.0M, which fell 7.5% YoY from $336M recorded in FY 2018. Overall, FIRST recorded a Profit for the Period of $751.7M, an 11.6% improvement from the $673.7M reported in FY 2018.
The Group’s Profit Before Tax continues to grow, increasing at a 3-Year Compounded Annual Growth Rate (CAGR) of 3.85%. The combined Retail and Corporate Banking segment continues to be the dominant contributor, followed by Treasury and Investment Banking operations. The Trustee and Asset Management followed a declining trend, moving from a PBT of $174M in FY 2016 to $94M in FY 2019, a decrease of approximately 46.0%.
The Bourse View
Currently priced at $44.52, FIRST is trading at a trailing P/E ratio of 14.9 times, in line with the banking sector average of 14.7 times. The stock also offers a trailing dividend yield of 3.8%, just shy of the sector average of 3.9%. On the basis of fair valuations and a relatively subdued economic environment Bourse maintains a NEUTRAL rating on FIRST.
For more information on these and other investment themes, please contact Bourse Securities Limited, at 226-8773 or email us at email@example.com.
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