Staying true to its earlier announced plan to address the shareholders’ funds shortfall necessitated by the CBN’s new capital requirement, Fidelity Bank launched a hybrid offer of a rights issue and an Initial Public Offer (IPO) on June 20, 2024.
The offer consists of:
Considering the share price of N12.95 on January 5, 2024, and the average share price of N10.35 between January 5, and June 20, 2024, both the rights issue and the IPO appear to be discounted.
The key questions are: How will this impact the bank’s bottom line? Is it advantageous for shareholders to exercise their rights? Is the offer beneficial for potential investors?
At the “N127.10 billion Public Offer and Rights Issue Facts Behind the Combined Offer” event held at the Nigerian Exchange Limited Headquarters in Lagos, Nneka Onyeali-Ikpe, the Managing Director and CEO of Fidelity Bank Plc, stated that the funds raised will:
The initiatives announced by Fidelity Bank are achievable and have the potential to enhance the bank’s bottom line, provided that the funds are effectively deployed.
There is a heightened risk environment. This is evidenced by a significant increase in the cost of risk to 2.6% in 2023 from a mere 0.3% in 2022, along with a slight uptick in non-performing loans to 3.5%.
In response to these challenges, the bank has adopted a cautious approach.
For the fiscal year 2024, it has set a moderate loan growth projection of 10% in constant currency, which represents a slight increase from the 8% recorded in 2023.
That said, Fidelity Bank has shown resilience in its financial performance so far, achieving significant milestones in 2023 in line with its trend of steady growth. Commenting on the results, MD/CEO Nneka Onyeali-Ikpe stated:
“We concluded the financial year with strong double-digit growth across key income and balance-sheet lines, which underpins our capacity to deliver superior returns to shareholders.”
Looking forward, the bank has projected a PBT target of N175 billion for the 2024 fiscal year, with a dividend payout range of 25% to 40%.
Fidelity Bank’s strong performance across key income and balance sheet indicators in 2023, coupled with these forecasts, is commendable.
However, it is crucial for Fidelity Bank to not only meet but exceed these targets to sustain and enhance investor confidence, especially during its current market activities.
Fidelity Bank’s position as the most actively traded stock on the Nigerian Stock Exchange over the past three months (from March 14 to June 21, 2024) highlights the market’s interest and potential positive sentiment surrounding the bank’s ongoing initiatives.
The share price has declined by 8.76% year-to-date, closing at N9.90 on Friday, June 21, 2024. This includes a 4.81% decrease observed immediately after the announcement of the rights issue and IPO on June 20, 2024.
The share price has declined by 8.76% year-to-date, closing at N9.90 on Friday, June 21, 2024. This includes a 4.81% decrease observed immediately after the announcement of the rights issue and IPO on June 20, 2024.
Existing Shareholders:
This analysis points to the potential for capital appreciation for new investors participating in the IPO at N9.75 per share.
With analysts forecasting a median price target of N11.55 over the next year, investing at the IPO price presents an opportunity to capitalize on potential future gains as the stock moves towards its target prices.
However, it is important to note that issuing many new shares at a discount could temporarily impact the market price, potentially causing short-term volatility.
Both existing and new investors should be aware of this possibility and consider the long-term prospects of the bank.