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Access Bank H1-2017 - FY-2017 PAT Forecast Trimmed but Target Price Raised


Thursday 24th August 2017 5:05 PM/ Elixir Investment Research

Access Bank recently released its H1-2017  earnings which showed solid profit growth despite continued contraction of key risk assets and liability books in Q2. We noted in the Q1 equity report that a revision of balance sheet forecasts will be necessary if we do not see traction around asset and liability growth.

Following continued contraction of the loan, deposit and investment securities books, we trimmed 2017 loan and deposit growth forecasts from 13.55% and 12% to 8.48% and 7% respectively, and now expect the investment securities portfolio to shrink by 2.43% in 2017 against a previous growth forecast of 15% (the portfolio is down 19.10% year-to-date)—pledged assets which largely consist of FGN debt expanded by 25.27% year-to-date which means that the bank’s FGN debt holding is little-changed year-to-date. 

We also slightly boosted net interest margin through the forecast period to take into account the current high yielding environment which should have residual impact over the coming years. 

The downward revisions of key asset and liability forecasts saw our FY-2017 profit after tax projection revised down from ₦84.36 billion to ₦81.58 billion. That said, the 12-month target price was raised from ₦11.15 to ₦12.21 largely off the back of an update of relative valuation metrics—the stock is a BUY.

Net interest income jumped 21.32% y/y to ₦83.04 billion as interest-earning asset rose 18% y/y while interest-bearing liabilities added 17% y/y. That said, loans and investment securities dropped 4% and 27% in H1—pledged assets up 25% in the period—while deposits contracted by 5.72% in H1. Net interest margin edged up from 6.21% to 6.37% as the high yielding environment although positive for the bank’s average yield also hit average funding cost—yield on asset rose from 10.18% to 12.42% while cost of funds increased from 3.63% to 5.58% as cost of customer deposit (↑64% y/y) and debt securities issued (↑181% y/y) surged.

Non-interest income added 37% y/y to ₦84.42 billion even as fees and commission income declined by 30% y/y to ₦25.07 billion and the bank booked a ₦3.65 billion loss on financial instruments, compared to a ₦33.09 billion profit a year ago. Supporting this line item was a net FX income of ₦59 billion compared to an ₦11 billion FX loss a year ago. Impairment charge inched up by 1.48% y/y to ₦10.36 billion as cost of risk came in at 1.19%, marginally up from 1.17% a year ago—we note that the run rate of impairments picked up in Q2 (↑124% q/q) but from a low base.

Expenses rose by 38% y/y to ₦105 billion, driven largely by a 45% y/y jump in other operating expenses to ₦69.14 billion as inflation remains elevated. Operating income was up 29% y/y to ₦167.46 billion but cost-to-income ratio rose to 62.73% from 58.36% a year ago. Profit after tax grew by 17.31% y/y to ₦39.46 billion and the bank declared a ₦0.25 interim dividend with a current yield of 2.50%—PE and PB ratios are 7.74x and 0.64x respectively. 

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