Access Bank Plc - 2018 ROE Guidance a Stretch

Proshare

Tuesday, March 27, 2018 /09:25 AM /FBNQuest  

10-12% cut to our 2017-18E EPS forecast and price target
Access Bank’s (Access) 2018 ROE guidance of 20% implies that the bank would have to deliver PAT growth of c.13% y/y to c.N110bn. On its conference call, management was confident that a reduction in funding cost via the repricing and gradual winding down of expensive structured funds would translate to a 70bp expansion in NIM, and that any ‘lost’ revenue on derivative income as its fx swaps mature could be replaced by funding income. We are more conservative than management; our 2018E NIM forecast is flattish y/y as we expect that a lower yield environment in general will limit the benefits accruing from the repricing of liabilities. 

Consequently, we have cut our 2018-19E EPS forecasts by around 10% on average and our price target by around 12% to N10.8. Our new forecast implies a 2018E ROAE of 12.4%, considerably lower than guidance. On asset quality, management sees the 38% provision taken on its 9mobile exposure as adequate, and as such guides to a cost of risk of 1.5% (vs 1.7% in 2017). 

It also expects the bank’s NPL ratio to improve slightly from the 4.8% reported as of end-2017. We find both guidance plausible. At current levels, Access Bank shares are trading on a 2018E P/B multiple of 0.59x for 12.7% ROAE in 2019E. These compare with the average multiple of 0.9x for 14.1% ROAE that our universe of banks is trading on. We retain our Neutral recommendation on the stock. 

Q4 2017 PBT down 67% y/y
Access Bank’s Q4 2017 PBT declined by 67% y/y to N7.2bn. The key drivers behind the marked drop in profitability were a -50% y/y reduction in noninterest income (fx swaps) and a 125% y/y spike in loan loss provisions stemming from a N19bn charge relating to its 9mobile exposure. These negatives completely offset funding income growth of 28% y/y and a 21% y/y decrease in opex (over-accrual as of 9M 2017 explains the softer opex in Q4). 

Further down the P&L, the y/y contraction in PAT narrowed to -9%, thanks to a positive result of N8.2bn in other comprehensive income (OCI). 

Sequentially, PBT and PAT fell by -66% q/q and -57% q/q respectively. Again the spike in provisions and a subdued non-interest income line were primarily responsible. Compared with our estimates, PBT missed by 57% because of negative surprises in non-interest income and provisions. However, thanks to the OCI gain, PAT was in line with our N13.3bn forecast. The bank’s PBT also trailed consensus’ 2017 PBT forecast of N91.4bn.


Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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