Impressed by the bullish run on the stock market in recent months, the Nigerian Exchange Limited (NGX) recently announced the reclassification of Fidelity Bank Plc from small price stock to medium price stock.
The evaluation upgrade recognised the active contribution of Fidelity Bank to the unusually bullish trend as Nigeria’s equities market hit a 15-year high of N35,92 trillion on July 25, 2023. The NGX-All Share Index rose to 65,991.02 points, the highest since March 12, 2008.
Raison d’etre
The NGX Limited, in a statement, said the reclassification became necessary because Fidelity Bank shares have been trading above the N5.00 mark since February 2023
Relying on rule 15.29 of the Rulebook of the Exchange, 2015 (Dealing Members’ Rules) NGX Limited noted that equities priced above N5 per share for at least four of the most recent six months of trading, or new security listings priced above N5 per share at the time of listing on NGX are classified as medium price stock.
“Fidelity Bank traded above the N5.00 mark on February 20, 2023 and has remained above the N5 mark up until close of business on 30 June 2023.
“This indicates that Fidelity Bank has been trading above N5 for at least four months in the last six months. Therefore, it should be reclassified from small price stock to medium price stock,” the NGX pointed out.
The development was an acknowledgement of Fidelity Bank’s robust contribution to the bountiful harvest that bargain hunters have enjoyed in the 62-year-old stock exchange in recent times, buoyed the bank’s corporate strategic plan.
“This is a good development. If a company performs well, it will surely be rewarded to earn investors’ confidence. The NGX did very well by recognising and rewarding Fidelity Bank for the impressive performance of its stock”, said Sam Ndata, Doyen of Nigerian Stockbrokers and non-executive director at UIDC Securities Limited.
Delightful milestone
As a confirmation of the strategic steps the bank had applied to grow its operations since the coming on board of Mrs Nneka Onyeali-Ikpe as the Group Managing Director/Chief Executive Officer (GMD/CEO) in January 2021, the upper level Tier-2 lender has sustained the tempo of its growth trajectory in the past two years, making it an investors’ toast among its peers.
In 2022, the bank posted a five-year record growth of 113 percent year-on-year in profit before tax of N53.7 billion. On the back of the impressive performance, it paid a 50 kobo dividend which the shareholders applauded.
The growth trajectory was sustained in the first quarter of this year (Q1 2023), with gross earnings up 42 per cent to N101 billion, signaling robust results in its awaited Q2 and half-year performance.
“Fidelity Bank is moving up in terms of performance. They have joined those paying interim dividends and they have also dipped their hand into big money tills for huge investment. They have borrowed big to be able to handle bigger contracts and be able to reap big.
“The reclassification is welcomed and I hope they will not disappoint us. If they are able to meet expectations, the benefit will be for Nigeria,” said Prince Anthony Omojola, National Co-ordinator, Independent Shareholders Association of Nigeria (ISAN), in a note to THEWILL.
Expansion scheme
Fidelity Bank shares rose to 32 percent this year making it the nation’s best-performing bank share as of half year (June 30). On the back of this strong position, it plans to establish presence in at least five African countries after finalising the acquisition of the London unit of rival Union Bank of Nigeria Plc in January 2023. According to Onyeali-Ikpe, the bank is negotiating a second purchase which will be completed in the year.
“The strategy is for us to move our footprint outside Nigeria and be able to compete favorably with our peers. In the next three years, we should be able to be in six countries by doing at least two every year. We are interested in countries within west, east and southern Africa,” Onyeali-Ikpe told Bloomberg. The lender plans to use the 13.8 billion naira it raised in a private placement earlier this year for the acquisitions,
By this move, Fidelity Bank is racing to expand and avoid losing out on fees from facilitating trade and corresponding banking roles to larger rivals. In 2022 the bank paid about $15 million in fees to international correspondence banks that handled trade transactions for its customers, Samuel Obioha, head of investor relations revealed separately.
Trade within the continent, which stands at more than $350 billion a year, is expected to grow by 52 percent in the next decade, according to the African Trade Policy Centre at the United Nations Economic Commission for Africa, hence the decision to step out like its Nigerian counterparts who are rooting for strong footings in the continent.
Moreover, slow economic recovery in Africa’s biggest economy after two recessions in 2016 and 2020, currency devaluations and acute dollar shortages are forcing lenders to look outside to curb their risks and widen opportunities.
Commenting on the afrocentric expansion strategy of Nigerian banks, a stockbroker and Head of Securities Trading at Planet Capital, Dr Paul Uzum, said the decision to diversify from an economically unstable Nigerian environment will give the the banks a pan-African outlook, with a more robust balance sheet resulting in high earnings per share (EPS) and dividend per share (DPS).
The Target
Onyeali-Ikpe set a target for Fidelity to become one of the country’s top five banks by 2025, in earnings and assets. It is currently Nigeria’s sixth-largest lender, with N4 trillion in assets. It expects capital adequacy ratio at 19.1 percent this year, will also use retained earnings to expand its operations outside the shores of Nigeria, a move that will boost investors’ confidence in the 36-year-old lender.
It is expected that the impressive financials would continue to attract investors to the bank as it adjusts to the challenges of the economy which impact top and bottom lines.
Based on their annual reports, Fidelity Bank, FCMB, and Stanbic IBTC led the list of top-performing Tier-2 banks during the 2022 financial year.
Findings showed that, collectively, six Tier-2 banks accumulated a total of N1.27 trillion in gross earnings, with Fidelity Bank leading the pack with N337.05 billion, while Stanbic IBTC stood out in terms of profit, recording a profit after tax of N80.81 billion during the period.
Investors’ Voice
Reacting to the reclassification of Fidelity Bank stock, the National Co-ordinator, Progressive Shareholders Association of Nigeria, Mr Boniface Okezie, applauded the development and commended the bank for its continent-focused expansion programme. He said the bank had paid its dues in the industry and should be ready to reap from what it had sown.
“Fidelity Bank has paid its dues in the financial services sector. It has contributed immensely to the development of the small and medium enterprises (SME) sector yet pays dividends to the shareholders.
“Last year, it took the market by surprise by declaring a dividend of 50k per share which had not happened in previous years. The massive investment in ICT and effective branch network shows it is ready to serve the customers in a better way and make the shareholders happy,” Okezie said in a note to THEWILL.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
