A few weeks ago, I alerted everyone on Fidelity bank, why the banking stock is still cheap at N2.38 and went on to share my technical and fundamental reasons you should quickly jump on the penny stock. In line with my forecast, the stock did rally by 17% to N2.80 before reversing the 6 days bullish run to settle at N2.46.
While I still anticipate further upswing close to my estimated fair value on the release of the bank’s full-year result, we advise that you remain cautious by considering a 25-30% exit price of N2.9-N3.
Here is Fidelity stock’s Chart:
Based on the chart above, Fidelity might be set for another rally as evident by the bullish pin bar formation at N2.34 – N2.4 support level. The bank had already surpassed its 9-months figure in its previous comparable period (2017) and is expected to release better full year’s figures.
How does this translate to a buying opportunity on FCMB stock, you may ask?
Both banks, as of this analysis, have the same trailing twelve month EPS of 77k which when discounted by a modest adjusted risk premium rate of 19%, presents a fair value of N3.8 – N4.05. FCMB stock sells for N2.27 far behind Fidelity bank’s stock (N2.46).
Interestingly, FCMB formed a golden crossover today. Find more information on how I trade the golden crossover.
Let us take a look at the FCMB stock’s chart below:
Technically, FCMB stock is trending close to a support level which looks like a buying opportunity for new entrants. We could see the banking stock gain strength at the point supported by positive sentiments from its impressive Q3 results. You are advised to wait for a bullish signal on an increased volume before taking a position.
Using the checklist to picking penny stocks that will rise more, FCMB is a clear pass for me; from the 50-day SMA cross above the 200-day SMA to the impressive momentum that supported the 50% and 26% rally in 3 and 6 months respectively and strong figures behind the bank Q3 financials the tier-2 bank is poised to post final result.
In its latest Q3 result, FCMB grew its overall earnings by 11.8% to N132b, from N118b in 2017. Profit before tax jump by a whopping 115.9% to N14billion against N6.8 billion recorded in the previous comparable period while profit aftex tax expandable significanly by 107.4% to N11.3b from N5.4. Earnings per share in the 9-month period followed the same growth path as its went up by 103.6% to 57k (against 28k).
If FCMB EPS (TTM) is 77k and 9-month EPS is 57k, then Q4 EPS for 2017 was 20k. Using a modest 20% Quarter on Quarter growth, we assume a Q4 2018 EPS of 24k which when added to 57k results in an expected full year EPS of 81k.
Based on this assumptions, we assign a fair value estimate of N4 -N 4.26 to FCMB stock which is 76% upside potential. Our rule of thumb is to take profit once we are 25-30% up on any stock.
Disclaimer: I own Fidelity and FCMB stock. You are advised to do your due diligence and consult your financial analyst for buy or sell recommendations.