Access Bank PLC Q1-2020: FX Revaluation Loss Pressures Bottom-line Profit

By
Brand Spur
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0
Access Bank
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Access Bank Plc announced its results for Q1-2020, gross earnings grew by 31.9% to NGN211.12 billion as profitability remained benign. Net interest income and non-interest income grew by 27.0% to NGN72.21 billion and 56.0% to NGN72.98 billion respectively as growth in operating expenses and interest expense coupled with FX revaluation losses impacted bottom-line profit. The bank recorded a profit before tax of NGN46.29 billion (+2.6% YoY) as profit after tax was down marginally by 0.5% to NGN40.93 billion due to a higher income tax expense of NGN5.36 billion from NGN3.95 billion in Q1-2019.

Key Highlights

  • Growth in interest expense was high at 10.6% to NGN59.66 billion but was dwarfed by an increase in interest income by 19.0% to NGN131.87 billion from NGN110.77 billion in the same period in 2019. This was supported by 46.4% (NGN83.84 billion) growth in income from loans and advances. Income from cash and balances with banks advanced by 67.7% to NGN2.63 billion as income from investment securities declined by 13.4% YoY to NGN44.01 billion.
  • Non-interest income was up by 56.0% to NGN72.98 billion to offset the significant FX revaluation loss of NGN53.26 billion. Impressive earning on fees and commission also supported the income, as it grew by 76.0% to NGN23.00 billion.
  • Operating expenses increased significantly during the period by 63.8% to NGN90.32 billion as a result of a merger with Diamond Bank in March 2019. Hence, all contributing lines recorded a spike YoY – AMCON levy rose by 54.6% to NGN17.52 billion, NDIC was up by 62.0% to NGN3.71 billion, personnel expenses advanced by 53.5% to NGN19.63 billion as other expenses grew by 77.8% to NGN42.31 billion.

Valuation and Analyst’s Comment

We place a BUY recommendation on Access Bank Plc. with a 12-month target price of NGN8.58 – translating to an estimated capital gain of 37.32% from its April 28, 2020 closing price of NGN6.25. We are of the opinion that the bank will continue to exploit the merger advantage with Diamond bank in the face of lower transaction charges. Efficiency is still a major concern as operating expenses were significantly higher for Q1-2020. We believe this will pare out as the lockdown reduces business operating expenses.