Wednesday, September 08, 2021 / 1:18 PM / by FBNQuest Research / Header Image Credit: Brand Communicator
5% upward revision to our price target
Access Bank's PBT of NGN37bn was in line with our forecast. However, net income missed primarily because of a negative surprise in other comprehensive income (OCI) as a result of fair value adjustments on bonds classified as FVOCI. Consequently, we have cut our FY '21 EPS forecast by c-19%. Although PBT was in line, the revenue lines were mixed. Unlike other banks, Access' funding income increased by 97% y/y due to an 80bp y/y increase in net interest margins (NIMs), which was mostly due to higher earnings yields on investment securities.
The increased yields on investment assets were primarily derived from bills from its swaps positions, which earned yields of c.13.5%, according to management. Consequently, the bank's funding income surprised positively relative to our forecast. Non-interest income, on the other hand, missed our forecast due to losses on derivatives and fixed income securities, and a y/y reduction in loan recoveries. Consequently, we have increased our FY '21 funding income forecast by roughly 14%. We have also cut our non-interest income forecast by c.9% following the weaker-than-expected non-interest income result.
Although our PBT forecast is c.7% higher, we have reduced by c.-19% our FY '21 EPS forecast due to the negative result of c.-NGN32bn in OCI in Q2 '21. Despite cutting our EPS forecast, our new price target of c.NGN16.6 is 15% higher because we have rolled forward our valuation to FY '22f. With regards to asset quality, Access Bank's NPL ratio of 4.3%, though up 30bps q/q, is still amongst the lowest in the sector. The bank trades on a '21f P/B multiple of 0.4x for an ROAE of 15.5% in FY '22f. These compare with the average multiple of 1.0x for a '22f ROAE of 12.0% that MSCI EM banks are trading on. Our new price target implies a potential upside of 77% from current levels. As such, we retain our Outperform rating on the shares.
Post-tax loss of -NGN1.9bn in Q2, driven by a loss of -NGN38bn in OCI
Access' Q2 PBT grew 34% y/y to NGN37bn. The strong PBT growth was underpinned by a 27% y/y increase in pre-provision profits, which outweighed y/y increases in loan loss provisions and opex. Unlike other banks, Access' funding income grew by 97% y/y and was the primary source of revenue growth. Non-interest income, on the other hand, fell -31% y/y mainly because of losses on derivatives and fixed income securities. Following a loss of c.-NGN38bn in OCI, Access reported an after-tax loss of -NGN1.9bn (after OCI), compared with a profit of NGN54.5bn in Q2 '20.