First Bank of Nigeria Holdings Plc (''FBNH'') released unaudited Q2-17 results yesterday, wherein gross earnings grew marginally by 4.63% (down 8.01% y/y and 66 bps below our estimate), while PBT and PAT contracted 22.50% q/q (-35.09% y/y) and 18.64% q/q (-13.15% y/y), respectively. The contraction in earnings broadly reflects poor performance across key line items; interest income grew slightly by 3.62% (57 bps below our estimate), while NIR declined 55 bps (-68.16% y/y) to miss our estimate by 7.99%. On the other hand, the impressive growth in net insurance premium (+126.56% q/q and 95.00% y/y) is worthy of note, albeit inconsequential to offset the sanguine performance of the major income line items.
For the rest of 2017, we expect interest expense will remain elevated, as liquidity pressure (liquidity ratio was down to 50.4% in H1-2017, from 55.9% and 52.7% in H1-16 and FY-16, respectively) persists, and with the US Feds rate hike impact on the LIBOR further compounding the already stretched LCY interest rate. Although we expect the re-pricing of assets, higher yields on investment securities, and FX interest income to support NIM, risk asset creation will remain subdued as the bank takes strategic steps to clean its loan portfolio.
Based on our last TP of N5.37, implying 10.09% downside from yesterday's close price of N5.97, we have a SELL recommendation on the stock. Our estimates are under review.