Access Bank Plc: Stronger asset yield comes to the rescue

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ACCESS recently released its H1’19 audited results; its maiden audit postmerger. Gross earnings increased by 28% y/y and 3% q/q to ₦324.4 billion in H1’19 (H1 2018: ₦253.0 billion), with interest income contributing 84%. Interest Income grew by 46% y/y to ₦257.9 billion from ₦186.7 billion in H1’18. The bank realized a Yield on Asset (YoA) of 13.4% from 12.2% in H1’18. On the other hand, Non-Interest Income decreased by 22% y/y to ₦51.5 billion from ₦66.1 billion in H1’18. These results deviated considerably from our topline estimates, with Q2’19 Interest Income 38.9% higher than expected, while Q2’19 Non-interest Income underperformed significantly due to a net Foreign Exchange loss. That said, PBT for the period was up 62% y/y to ₦74.1 billion (Q2’19: ₦29.0, billion down 36% q/q) but 10.0% below our estimate, while PAT increased by 59% to ₦63.0 billion (Q2’19: ₦21.9 billion, down 47% q/q) 16% behind our estimate. The bank recorded Q2’19 EPS growth of 40% y/y to ₦1.90 with an annualized Return on Average Equity (ROAE) of 23.5% (FY’18: 19.17%) and a Return on Average Asset (ROAA) of 2.2% (FY’18: 2.5%) for the quarter.

Improved Interest income cushions Foreign exchange loss

In Q2’19, ACCESS garnered Interest Income of ₦162.1 billion (Q1’19: ₦110.8 billion), as the bank realized a 138% y/y surge in Interest Income from investment securities along with a 15% y/y rise in interest income from loans. Net Interest Income also came in strong at ₦98.3 billion during the quarter (up 82% y/y and 73% q/q) with NIM improving by 200bps y/y to 7.6% due to the bank’s success in containing interest expense growth to
16% y/y and 18% q/q (Cost of Funds decreased 100bps y/y to 4.8% from 5.8% in H1’18). However, the bank realized a ₦25.1 billion loss in Q2’19 from foreign exchange trading, revaluation losses and derivative instruments. This loss eroded the ₦6.2 billion realized in Q1’19 and overshadowed the impressive q/q growth of 68% in Net Fee Income (Q2’19
– ₦26.2 billion), thereby limiting non-interest income to just ₦2.1 billion for Q2’19.

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Furthermore, Earnings were also dragged by a 21% q/q growth in Opex to ₦69.9 billion tracked 12% ahead of our estimate. Operating income of ₦100.4 billion however missed our Q2’19 estimate by 3.7%, though the 36% y/y growth in H1’19 offset the Opex growth of 30% y/y to improve cost-income ratio to 61% from 65% in H1’18.

Restructuring, recoveries improve post-merger asset quality

ACCESS has expanded total assets by 31% since FY’18 to ₦6.4 trillion with liabilities (customer deposits) of ₦4.2 trillion up 63% YTD, expanding faster than core assets (loans and advances up 34% YTD to ₦2.9 trillion) during the period. Asset quality (measured by NPLs) has improved since Q1’19 (10.0%) to 6.4% in H1’19, albeit above the H1’18 (Pre-merger) figure of 4.7% – loan restructuring and a few recoveries have reduced NPLs by just over ₦100 billion post-merger. The banks LDR of 66% remains well above the CBN floor of 60%, while its CAR remains adequate at 20.8% flat y/y.

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TP revised to ₦12.43 (Previous: ₦8.42)

We have adjusted our estimates to reflect the higher interest income realized in H1’19 and trimmed our FY’19 non-interest expectations. Our new topline estimates for interest income and non-interest income are ₦507 billion (Previous: ₦396 billion) and ₦190 billion (Previous: ₦222 billion) respectively. Operating income is adjusted slightly higher to ₦444 billion from ₦418 billion while our FY’19 PAT figure has increased to ₦155.1 billion (Previous: ₦126.5 billion). As of September 9, ACCESS shares traded at a P/B multiple of 0.4x, a 50% discount to peer average of 0.8x. The bank is on track to surpass its FY’18 ROAE of 19.7% with a H1’19 annualized ROAE return of 23.5%. Overall, we revise our 12-month Target Price to ₦12.43 from ₦8.42, following an upward revision in our 2019 ROAE estimate, and FY’19 dividend forecast to ₦1.08/share.

Vetiva Research

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