Tuesday, August 23, 2016 1:42pm /FBNQuest Research
Additional upside post earnings upgrade
Following Access Bank’s Q2 2016 results, we have increased our 2016-17E PBT estimates by an average of 22%. Our new 2016E PBT forecast of N96bn implies a y/y growth of 28%.
Despite continued strong fx swap income, we still expect non-interest income to be down y/y (-9%) due to base effects (2015 growth was +90% y/y). Having said that, our revenue expectations for 2016E are still healthy.
Combined with a forecast -5% y/y decline in opex, we expect these to more than offset a marked rise in loan loss provisions (+61% y/y; based on a 1.5% cost of risk assumption) to lead to our double-digit PBT growth expectation.
We have increased our price target by 26.3% to N9.7 as we roll over our valuation to 2017. Fx revaluation gains below the line (translation effects) combined with our (underlying) earnings upgrade and the roll-over effect more than offset an increase of 200bps to our risk free rate assumption to 14.5%.
Year to date, Access Bank has gained 21%, outperforming the market by almost 24%. Our new price target implies further upside potential of 65%. We retain our Outperform recommendation.
Q2 2016 earnings boosted by non-interest income and OCI
Access Bank’s Q2 2016 PBT and PAT rose by 21% y/y and 192% y/y respectively. The significant increase in the bottom line was mainly due to a positive result of N36bn on the other comprehensive income line.
The latter came from fx translation gains on foreign subsidiaries as well as fair value gains on available for sale securities. Profit before provisions was up 11% y/y and more than offset a 56% y/y rise in provisions. Opex was down slightly, by -1.4% y/y. Of the two income lines, net interest income grew 38% y/y while non-interest income fell -5% y/y, reflecting base effects.
Access recorded an fx revaluation loss in H1 of –N15bn, unlike its peers, but the fx-related swap income (N33bn) has to be taken into consideration. The q/q performance was similar and dominated by the OCI line and non-interest income.
Relative to our forecasts, the results were well ahead of expectations because we did not forecast any gain/loss on the OCI line.
Although net interest income was only slightly ahead of our N33bn forecast, the non-interest income result was 46% ahead of our estimate, leading to profit before provisions coming in 22% higher than we had expected.
While loan loss provisions of N7.8bn negatively surprised by 82%, the better-than-expected revenues were more than enough as an offset, leading to a positive surprise of 49% on the PBT line (opex was in line).
1. ACCESS BANK Half-Year Earnings Presentation: The key takeaways
2. Access Bank Plc Impressive Earnings Beat Estimates, PAT Up by 26% YoY
3. Access Bank NPLs to Total Gross Loans Stand at 1.9% in H1'16 As Against 1.7% in 2015
4. ACCESS declares N39.49 billion PAT in Q2 2016 Result Proposes 25kobo Interim Dividend SP N5.34k
5. Inflation Rate to Accelerate to 17.2 in July 2016 - Access Bank
6. Access Bank Plc to Submit Half Year Audited Financials Not Later Than 31st August 2016
7. Access Bank anticipates the MPC will retain the existing FX policy regime
8. Inflation to Moderate Downwards to 15.4% in June 2016 - Access Bank Plc
9. Access Bank anticipates the MPC will retain the existing FX policy regime
10. ACCESS Issues Release Over EFCC s Investigation
11. ACCESS Records 4.9bn Loss in Other Comprehensive Income Line in Q1 2016 Results
12. ACCESS declares N19.42 billion PAT in Q1 2016 Result,(SP:N4.51k)
13. Takeaway from Access Bank Plc Conference Call - March 2016
14. ACCESS: Fundamentals Support Significant Upside Potential
15. ACCESS: NIR gains and lower taxes power 2015 earnings
16. ACCESS Q4 2015 OPEX Grows by 41% YoY; Shares Rated Outperform
17. ACCESS declares N65.87 billion PAT; Proposes 30kobo Dividend in 2015 Audited Result,(SP:N4.51k)