Fidelity Bank Plc ("FIDELITYBK") achieved a major feat in earnings in 9M'24, wherein PAT surged by 2.5x to N224.7 billion. The financial performance highlighted a strong tilt to net interest income (NII: 83.0% of operating income) and a modest improvement in non-interest revenue (NIR: 17.0% of operating income). The revenue split in favour of NII highlights the bank's strong capacity to leverage the higher yield environment and contain its second-hand negative impact on interest expense. Consequently, NIM expanded by 3.5ppts to 11.9%.
Into 2025, our expectation for a slight moderation in yields in H2'25 suggests that NIM expansion may be capped. Emphasis will need to be placed on maximizing higher asset yields in H1'25 and boosting interest-earning assets (IEA) to sustain NII growth, especially given the significance of NII to operating income performance (over 2018 to 2022, NII has contributed the bulk of operating income — c.77.2%). Despite our expectation for c.200bps moderation in yields across the curve, we still see legroom for a 50.9% increase in PAT to N421.9 billion in FY'25.
Valuation summary
We revise our 12-month Target Price ("TP") higher to N18.91 (formerly N14.80) to primarily reflect improvements in our mean ROE. For context, we now expect an average ROE of 40.1% over our forecast horizon (vs a 5-year historical mean of 14.7%). Our new TP portends an 18.2% upside from a reference price of N16.00. The limited upside reflects the dilutive impact of the additional 27,343,589,744 shares issued via the rights issue and public offer. We retain our BUY recommendation on the ticker.
