11% upward revision to our price target
Access Bank's (Access) Q1 '21 PBT came in well ahead of our forecast due to positive surprises on both revenue lines. Consequently, we have increased our FY '21-22f earnings forecasts by 37% on average. However, our new price target of NGN14.5 is 11% higher because we have increased our risk-free rate by 150bps to 12.5% to reflect the uptick in government bond yields. Although our new forecasts imply PBT growth of 20% y/y to NGN151bn, they imply a -33% y/y decline in EPS to NGN3.2 because of a negative result of c.-NGN11bn in other comprehensive income (OCI). Our forecasts imply a '21f ROE of 15.3% (ROAE 14.4%), conservative relative to management's 20% guidance. With respect to its pan-African expansion, the bank continues to expand its footprint across the continent.
Following its recent acquisition of BancABC Mozambique in May, newswire reports indicate that the bank is in the process of acquiring majority stakes in BancABC Botswana at an estimated valuation of 1.13x book value. Access Bank's financial soundness indicators are also quite robust. Despite recent acquisitions aimed at expanding its footprint across the continent, its capital adequacy ratio of 21.2% (full impact) is comfortably above the regulatory minimum and among the best within the sector. Its NPL ratio also improved by 30bps q/q to 4.0%.
At current levels, Access Bank trades on a '21f P/B multiple of 0.36x for an ROAE of 14.5% in FY '22f. The multiple represents a 35% discount to the 0.55x (for 15.6% ROAE) average for our universe of bank stocks. Our new price target implies a potential upside of 73% from current levels. We keep our Outperform rating on the shares.
Q1 '21 PAT up 62% y/y after mixed Q4
Access Bank's Q1 '21 pre-provision profits grew 13% y/y, underpinned by a 30% y/y growth in funding income. The funding income growth was mainly driven by a -17% y/y reduction in interest expense. Although loan loss provisions spiked by 46% y/y, the growth on the pre-provision profit line proved significant and led to PBT growth of 30% y/y.
Further down the P&L, PAT advanced 62% y/y, following a 32% y/y reduction in the negative result on the OCI line. In Q4 '20, PBT fell 16% y/y because loan loss provisions and opex spiked by 199% y/y and 31% y/y respectively. However, PAT grew by c.20x to NGN72.9bn.
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