De-dollarising book curbs FX earnings swing
Muyiwa Oni
#themes: Profitability Pressure, FX Management
Action/Event: InfraCredit published its H1 2026 results, reporting a 30% y/y fall in pre-tax profit (incl. FX) to N4.79bn. The decline was driven by N2.13bn of unrealised FX revaluation losses and a 15% drop in net investment income to N9.02bn following the redemption of USD preference shares. Excluding FX, PBT fell a milder 13% to N6.92bn, and gross revenue was down 12% to N16.13bn. Critically, the core guarantee business kept growing as net guarantee fee income rose 6% to N2.93bn and the guarantee fee margin widened to 86% (from 83.5%). We read the headline weakness as largely non-cash and strategy-driven rather than a deterioration in the franchise.
Core guarantee income remains the engine: Net guarantee fee income increased 6% to N2.93bn, with gross guarantee fee income of N3.40bn (+3%) against N0.48bn of fee expenses (-13%). The margin expansion to 86% reflects stronger pricing discipline and lower guarantee-related costs. Guarantee fee income now covers 76% of operating expenses from 70% in H125.
Net investment income fell 15% to N9.0bn as investment securities declined 41% to N140.9bn following USD preference share redemptions, reflecting a deliberate capital optimisation strategy rather than weaker investment performance, with 93% of assets in hold-to-maturity instruments and 74% USD-denominated.
Guarantee portfolio grew 14.7% YoY to N324.5bn, diversified across 27 counterparties and 10 sectors, with management targeting N400bn of guarantee closes in FY2026 after executing N45.0bn of guarantees and approving N104.7bn in new deals year-to-date.
InfraCredit has received SEC approval and is now licensed as a Credit Enhancement Facility Provider (CEFP), subject to a N10bn minimum capital requirement, an 85% liquid-asset ratio, a minimum 'A-' rating, a 10x leverage cap and strengthened board and risk governance. The AAA(NG) national rating was reaffirmed. We view formal regulation as reinforcing the moat and investor confidence.
Outlook and Risk: Despite H1 2026 earnings pressure from non-cash FX losses and investment book deleveraging, the company's strong fundamentals, including a 14.7% growth in the guarantee book to N324.5bn, 6% fee growth, 86% guarantee margin, N229.1bn capital base, and 9.4% FY2026 ROAE target, support a positive outlook, though FX, execution, concentration, and funding risks remain.
Valuation: Using a P/B methodology, we derive an exit multiple of 0.65x from an average 3-year ROTE of 16.4% and cost of equity of 22.0%, which supports a 12-month fair value range of N3.4 - N4.0per share.
Read PDF