Gross earnings up 22% y/y
Provisions jump 237% y/y to ₦16.5 billion
Opex grows 44% y/y, but declines 7% q/q
Bank declares ₦0.25/share interim dividend (H1’19: ₦0.25)
Opex remains the main barrier to higher profits
Access Bank recently released H1’20 results, reporting 22% y/y growth in Gross Earnings to ₦396.8 billion (Vetiva estimate: ₦378.4 billion).
This came despite a 10% y/y decline in Interest Income and was mainly the result of a 191% y/y surge in Non-Interest Income, which was driven by net gains on financial instruments, specifical derivatives of ₦103.2 billion.
Meanwhile, provisions jumped 237% y/y to ₦16.5 billion (Vetiva estimate: ₦17.9 billion) while Opex worsened 44% y/y to ₦185.5 billion (Vetiva estimate: ₦172.7 billion).
The significant increase was mainly due to a 56% y/y increase in AMCON charges, which added ₦12.8 billion to the bank’s expense line.
Furthermore, Access bank reported a 16% y/y increase in personnel expenses to ₦₦36.3 billion. Overall, this led to a 2% y/y growth in PBT to ₦74.3 billion and PAT of ₦61.0 billion, a 1% y/y decline, in line with our expectations. The banks also declared an interim dividend of ₦0.25/share (H1’19: ₦0.25).
Cost synergies materializing at a slower than the optimal pace
Access Bank’s Q2 performance was weaker than Q1 across the board. Gross Earnings declined 11% q/q to ₦186.9, with Interest Income falling 13% q/q to ₦114.9 billion and Non-Interest Income declining 7% q/q to ₦72.1 billion.
The decline in Interest Income was a result of lower income booked on investment securities, whilst Non-Interest Income was dragged by a further ₦11.0 billion loss on foreign exchange in Q2 along with a steep decline in gains on financial instruments held at FVOC (-37% q/q).
Amid these declines in earnings, Operating expenses also declined albeit to a lesser extent. Staff costs declined 15% q/q to ₦16.6 billion while provisions fell 7% q/q to ₦7.9 billion. This led to a 40% q/q decline in PBT to ₦27.9 billion. Looking forward, we expect some improvements in quarterly performance in H2, with Non-Interest Income likely to improve as foreign exchange losses normalize.
Therefore, we raise our FY’20 Non-Interest Income estimate to ₦227 billion (Previous: ₦194.9 billion). Furthermore, we revise our provision expectation to ₦32.9 billion (Previous: ₦37.6 billion), while raising our Opex forecast to ₦306.2 billion (Previous: ₦276.6 billion).
TP revised to ₦11.95 (Previous: ₦11.35)
As a result of our revisions based on Access Bank’s H1 and Q2 performance, we have raised our FY’20 PAT estimate to ₦97.2 billion (Previous: ₦91.4 billion). This yields an EPS projection of ₦2.73 (Previous: ₦2.59) and a 12-month target price of ₦11.95 (Previous: ₦11.35). Thus, we maintain our BUY rating on the stock. Access bank’s shares are currently trading at P/E and P/B of 2.4x and 0.4x vs a Tier-I average of 2.9x and 0.5x respectively.