External broker reports(aggregated public sources), CardinalStone

CardinalStone

External broker reports(aggregated public sources)

CardinalStone is an independent, multi-asset investment management firm offering an assortment of financial services to a diverse institutional, high net worth and retail clientele base. The company began operations in June 2008 and its business is conducted across six divisions – Investment Banking, Asset Management, Securities Trading, Trust Services, Registrar Services and Financing. Headquartered in Lagos with offices in Abuja, Nigeria, the firm and its licensed subsidiaries diligently works with its clients to create bespoke solutions for their needs.

Equity Bottom-Up

<ul><li>Aided by a stronger Net Interest Margin (NIM) (+1.0ppt YoY) and higher fair value gains on financial instruments, FBNH reported a 2.1x surge in operating income to N1.5 trillion in 9M'24.</li><li>This impressive operating income print highlights the impact of a 76.3% YoY expansion in interest-earning assets (IEA) to N19.3 trillion and a 3.2ppts increase in asset yields that aligns with the elevated interest rate environment.</li><li>Hence, accounting for these improved gains as well as broadly stable core drivers, we revise our gross earnings and PAT projections to N3.1 trillion and N734.0 billion, respectively.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Aided by a stronger Net Interest Margin (NIM) (+1.0ppt YoY) and higher fair value gains on financial instruments, FBNH reported a 2.1x surge in operating income to N1.5 trillion in 9M'24.This impressive operating income print highlights the impact of a 76.3% YoY expansion in interest-earning assets (IEA) to N19.3 trillion and a 3.2ppts increase in asset yields that aligns with the elevated interest rate environment.Hence, accounting for these improved gains as well as broadly stable core drivers, we revise our gross earnings and PAT projections to N3.1 trillion and N734.0 billion, respectively.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

FBN HOLDINGS PLC - Interest Income to Propel FY’25 Earnings

Fbn Holdings Plc  - Interest Income to Propel FY’25 Earnings

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Asia’s Additional Tier 1 (AT1) bonds outperformed Tier 2 and Senior Unsecured securities, despite rather constrained credit risk sentiment. In rate markets, US Treasury curve steepening roared back. Concurrently, interest rate futures rose considerably on even higher federal stimulus expectations. Rate markets may be over-pricing the potential for a "True Blue-Sweep". The risk at this point is an effectively split ticket in which Senate Republicans, aided by conservative-Democrats, water-down federal stimulus bills. Treasury yields may gap down as a result. Bank valuations could follow. The sell-off in US Treasuries was not met with increased buying in Emerging Market (EM) or High Yield (HY) markets. EM investors were more focused on early 2021 fund flows while risk-free rates rise. HY investors contemplated the potential for higher default rates over the next year. An unsynchronized global economic recovery will make single name selection more important over the near term.Asia’s HY markets slightly outperformed the US’ as both indexes tightened slightly during the week. The relative outperformance of Asia versus the US resulted in slight spread compression between the two indexes, although the remain wide of last year’s average and this years’ tights.EM capital inflows and US dollar index levels were essentially unchanged during the week despite yuan appreciation. China’s yuan hit the strongest level against the US$ since 2018. As the week closed, a spokeswoman from China’s State Administration of Foreign Exchange suggested an official tolerance of the higher currency level. Lower US-China tensions under a Biden administration could push the yuan even stronger. This may be beneficial for regional banking systems.Financial institutions issued over US$14 billion in USD and Euros. Amongst Asia-headquartered banks, the <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-group-inc" target="_blank" data-smartkarma-citation="entities:217:1" rel="noopener">Sumitomo Mitsui Financial Group (8316 JP)</a> and <a href="https://www.smartkarma.com/entities/kb-capital-co-ltd" target="_blank" data-smartkarma-citation="entities:3646:1" rel="noopener">KB Capital (021960 KS)</a> were the only financial institutions to access global capital market during the week. The <a href="https://www.smartkarma.com/entities/fbn-holdings-plc" target="_blank" data-smartkarma-citation="entities:27846:1" rel="noopener">First Bank of Nigeria (FBNH NL)</a> brought a five-year note with an 8.625% coupon for Frontier Market investors. Meanwhile, oversubscription  in the Investment Corporation of Dubai’s note suggests positive investor sentiment towards Dubai, which should be supportive for the <a href="https://www.smartkarma.com/entities/commercial-bank-of-dubai" target="_blank" data-smartkarma-citation="entities:29706:1" rel="noopener">Commercial Bank of Dubai's (CBD UH)</a> recently issued AT1 bond. For our thoughts on this security, please see: <a href="https://www.smartkarma.com/insights/commercial-bank-of-dubai-vs-bank-of-east-asia-a-tale-of-two-at1s-in-covid-19-uncertainty" target="_blank" data-smartkarma-citation="insights:44387" rel="noopener">Commercial Bank of Dubai Vs Bank of East Asia: A Tale of Two AT1s in COVID-19 Uncertainty</a>.   In terms of Q3 earnings, Thai banks reported mixed results and, despite missing expectations, <a href="https://www.smartkarma.com/entities/bangkok-bank-public-co-ltd" target="_blank" data-smartkarma-citation="entities:213:1" rel="noopener">Bangkok Bank's (BBL TB)</a> notes outperformed other Thai Bank bonds, all of which, also tightened week-on-week. For our thoughts on Bangkok Bank and Thai banks more broadly, please see <a href="https://www.smartkarma.com/insights/bangkok-bank-s-new-at1-overweight-on-relative-value" target="_blank" data-smartkarma-citation="insights:43402" rel="noopener">Bangkok Bank’s New AT1 – Overweight on Relative Value</a> and <a href="https://www.smartkarma.com/insights/thai-bank-capital-and-chronic-covid-19-sensitivity" target="_blank" data-smartkarma-citation="insights:44011" rel="noopener">Thai Bank Capital and Chronic COVID-19 Sensitivity</a>, respectively. As the week closed, <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> reported second quarter, to September, results which beat expectations. The bank managed to generate a profit, versus expectations of another loss, on positive operating jaws as interest and operating expense declines offset lower operating revenues. The bank reported a Common Equity Tier 1 ratio above its minimum requirement for the first time in one year following its capital raise in July and after incorporating the Reserve Bank of India’s recent asset risk-weight reductions. Yes Bank’s results should be positive for its 2023 US$-maturity note.Market Outlook: U.S. Treasury market moves this week suggest that the risk is now election outcome driven. The question is whether Democrats will truly sweep the Senate, House, and Presidency. Effectively conservative-Democrats could water-down federal stimulus efforts. At the same time, although stimulus may be positive for US risk assets, higher long-term rates may not be EM friendly. However, a rise in long-term rates may be tempered by the return of US Treasuries as a favored carry-trade option and by more targeted Federal Reserve asset purchase program operations. Eventual reflation is bank credit and equity positive, getting to reflation is not.

Asia’s Additional Tier 1 (AT1) bonds outperformed Tier 2 and Senior Unsecured securities, despite rather constrained credit risk sentiment. In rate markets, US Treasury curve steepening roared back. Concurrently, interest rate futures rose considerably on even higher federal stimulus expectations. Rate markets may be over-pricing the potential for a "True Blue-Sweep". The risk at this point is an effectively split ticket in which Senate Republicans, aided by conservative-Democrats, water-down federal stimulus bills. Treasury yields may gap down as a result. Bank valuations could follow. The sell-off in US Treasuries was not met with increased buying in Emerging Market (EM) or High Yield (HY) markets. EM investors were more focused on early 2021 fund flows while risk-free rates rise. HY investors contemplated the potential for higher default rates over the next year. An unsynchronized global economic recovery will make single name selection more important over the near term.Asia’s HY markets slightly outperformed the US’ as both indexes tightened slightly during the week. The relative outperformance of Asia versus the US resulted in slight spread compression between the two indexes, although the remain wide of last year’s average and this years’ tights.EM capital inflows and US dollar index levels were essentially unchanged during the week despite yuan appreciation. China’s yuan hit the strongest level against the US$ since 2018. As the week closed, a spokeswoman from China’s State Administration of Foreign Exchange suggested an official tolerance of the higher currency level. Lower US-China tensions under a Biden administration could push the yuan even stronger. This may be beneficial for regional banking systems.Financial institutions issued over US$14 billion in USD and Euros. Amongst Asia-headquartered banks, the Sumitomo Mitsui Financial Group (8316 JP) and KB Capital (021960 KS) were the only financial institutions to access global capital market during the week. The First Bank of Nigeria (FBNH NL) brought a five-year note with an 8.625% coupon for Frontier Market investors. Meanwhile, oversubscription  in the Investment Corporation of Dubai’s note suggests positive investor sentiment towards Dubai, which should be supportive for the Commercial Bank of Dubai's (CBD UH) recently issued AT1 bond. For our thoughts on this security, please see: Commercial Bank of Dubai Vs Bank of East Asia: A Tale of Two AT1s in COVID-19 Uncertainty.   In terms of Q3 earnings, Thai banks reported mixed results and, despite missing expectations, Bangkok Bank's (BBL TB) notes outperformed other Thai Bank bonds, all of which, also tightened week-on-week. For our thoughts on Bangkok Bank and Thai banks more broadly, please see Bangkok Bank’s New AT1 – Overweight on Relative Value and Thai Bank Capital and Chronic COVID-19 Sensitivity, respectively. As the week closed, Yes Bank (YES IN) reported second quarter, to September, results which beat expectations. The bank managed to generate a profit, versus expectations of another loss, on positive operating jaws as interest and operating expense declines offset lower operating revenues. The bank reported a Common Equity Tier 1 ratio above its minimum requirement for the first time in one year following its capital raise in July and after incorporating the Reserve Bank of India’s recent asset risk-weight reductions. Yes Bank’s results should be positive for its 2023 US$-maturity note.Market Outlook: U.S. Treasury market moves this week suggest that the risk is now election outcome driven. The question is whether Democrats will truly sweep the Senate, House, and Presidency. Effectively conservative-Democrats could water-down federal stimulus efforts. At the same time, although stimulus may be positive for US risk assets, higher long-term rates may not be EM friendly. However, a rise in long-term rates may be tempered by the return of US Treasuries as a favored carry-trade option and by more targeted Federal Reserve asset purchase program operations. Eventual reflation is bank credit and equity positive, getting to reflation is not.

Bank Credit Weekly: Election Risk Rises as Asia’s AT1s Outperform

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

<a href="https://www.smartkarma.com/entities/27846" target="_blank" data-smartkarma-citation="entities:27846:1">FBN Holdings Plc (FBNH NL)</a> is the oldest and second-largest bank in Nigeria with a market share of 14% of domestic loans.FBN’s solid franchise provides robust revenue generation capacity (especially in e-business and insurance) plus a solid and cheap funding base complemented by a strong liquidity profile. The Group's solid funding base of low cost retail deposits, mainly CASA, underpins one of the most competitive in the sector.Under new management, FBN is focused on a legacy asset quality clean-up and enhancing risk controls. The franchise has exhibited resilience in the face of system-wide asset quality problems, related to some extent to the concentration of oil/gas exposures.  Moving forward, profitability can strengthen with improving asset quality though the recent plunge in oil prices represents a threat to this de-risking process. A plus point is the vibrant income streams from e-business and insurance growth drivers.The operating environment in Nigerian remains challenging: while the country has emerged from a recession, vulnerabilities remain. Lower oil prices, tighter external market conditions, heightened security issues, and delayed policy responses are the main downside risks. The recent fall in oil prices is a concern given Nigeria’s dependency on the commodity and its knock-on effect to the hydrocarbon-exposed Banking System. Although access to foreign currency has eased, due to FX reforms, many borrowers retain limited capacity to service obligations and there are modest opportunities for banks to grow their loan portfolios.  <div class="content-highlight">FBN is thus somewhat of a contrarian call given the weakness in the oil market. But one should buy a hydrocarbon “play” when prices are low, not high. Shares trade at a 60% discount to Book Value and stand on a low Mkt Cap./Deposits rating of 8%, far below the global and EM median. FBN commands a dividend-adjusted PEG of 1.3x. Dividend and earnings yields are 3.3% and 15%, respectively.  A quintile 1 PH Score™ of 7.7 captures the valuation dynamic while metric change is satisfactory. Combining franchise valuation and PH Score™, FBN stands in the top quintile of opportunity globally. The asset quality position and interrelated lower profitability vis-a-vis peers is a reason behind FBN’s lower credit rating and relatively low valuation. We are somewhat sceptical that FBN’s underlying creditworthiness and valuation are efficiently evaluated versus more popular counterparts.</div>

FBN Holdings Plc (FBNH NL) is the oldest and second-largest bank in Nigeria with a market share of 14% of domestic loans.FBN’s solid franchise provides robust revenue generation capacity (especially in e-business and insurance) plus a solid and cheap funding base complemented by a strong liquidity profile. The Group's solid funding base of low cost retail deposits, mainly CASA, underpins one of the most competitive in the sector.Under new management, FBN is focused on a legacy asset quality clean-up and enhancing risk controls. The franchise has exhibited resilience in the face of system-wide asset quality problems, related to some extent to the concentration of oil/gas exposures.  Moving forward, profitability can strengthen with improving asset quality though the recent plunge in oil prices represents a threat to this de-risking process. A plus point is the vibrant income streams from e-business and insurance growth drivers.The operating environment in Nigerian remains challenging: while the country has emerged from a recession, vulnerabilities remain. Lower oil prices, tighter external market conditions, heightened security issues, and delayed policy responses are the main downside risks. The recent fall in oil prices is a concern given Nigeria’s dependency on the commodity and its knock-on effect to the hydrocarbon-exposed Banking System. Although access to foreign currency has eased, due to FX reforms, many borrowers retain limited capacity to service obligations and there are modest opportunities for banks to grow their loan portfolios.  FBN is thus somewhat of a contrarian call given the weakness in the oil market. But one should buy a hydrocarbon “play” when prices are low, not high. Shares trade at a 60% discount to Book Value and stand on a low Mkt Cap./Deposits rating of 8%, far below the global and EM median. FBN commands a dividend-adjusted PEG of 1.3x. Dividend and earnings yields are 3.3% and 15%, respectively.  A quintile 1 PH Score™ of 7.7 captures the valuation dynamic while metric change is satisfactory. Combining franchise valuation and PH Score™, FBN stands in the top quintile of opportunity globally. The asset quality position and interrelated lower profitability vis-a-vis peers is a reason behind FBN’s lower credit rating and relatively low valuation. We are somewhat sceptical that FBN’s underlying creditworthiness and valuation are efficiently evaluated versus more popular counterparts.

FBN Holdings: A Contrarian Call from Behind the Hydrocarbon Clouds and Shadows

Nigeria

First HoldCo Plc operates as a holding company. The Company, through its subsidiaries, provides offers merchant, investment banking, trusteeship, fund management, registrars, and advisory services, as well as sells insurance policies and mortgages via subsidiary companies. First HoldCo serves customers in Nigeria.

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First HoldCo (FIRSTHLD NL)

FBN HOLDINGS PLC - Interest Income to Propel FY’25 Earnings

Aided by a stronger Net Interest Margin (NIM) (+1.0ppt YoY) and higher fair value gains on financial instruments, FBNH reported a 2.1x surge in...

CardinalStone

Fbn Holdings Plc - Interest Income to Propel FY’25 Earnings

Aided by a stronger Net Interest Margin (NIM) (+1.0ppt YoY) and higher fair value gains on financial instruments, FBNH reported a 2.1x surge in...

CardinalStone

Bank Credit Weekly: Election Risk Rises as Asia’s AT1s Outperform

A must-read on US$-risk sentiment derived from high yield and equity markets, interest rates, dollar levels, capital flows and issuance to frame...

Hank Calenti, CFA

FBN Holdings: A Contrarian Call from Behind the Hydrocarbon Clouds and Shadows

FBN Holdings Plc (FBNH NL) is the oldest and second-largest bank in Nigeria with a market share of 14% of domestic loans.FBN’s solid franchise...

Paul Hollingworth

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