March 22, 2018 /01:55 PM /ARM Research
Bank Plc (Access) released its audited FY 17 result yesterday with earnings
running a tad behind our estimates on account of higher impairment and FX
revaluation losses. Precisely, EPS declined by 13% YoY to N2.14 (2017E: N2.53).
Nonetheless, the bank declared a final dividend of N0.40 which brings total FY
17 pay-out to N0.65 (same as 2016) and translates to dividend yield of 3%.
result resonates with our earlier report at the start of 2017 (Access Bank: Can
lightning strike thrice?) wherein we highlighted the boost in 2016 earnings
that stemmed from gains from the disposal of its 17% stake in Stanbic Pensions
and thus noted that with no assets to sell and with less fuel from currency
depreciation for its derivative tank, at least relative to prior years, we
expected Access to face an uphill struggle to replicate earnings momentum to
boost ROAE. In sync with this view, though the bank booked N120 billion in FX
trading income with a sizable chunk stemming from realized gains on derivatives
that matured during the year, non-interest revenue (NIR) was marginally flat at
N139 billion (2016: N133 billion) on the back of N12 billion FX revaluation
loss and a flattish fee income (+2.2% YoY to N57 billion). Given the preceding,
Net Interest Margin (NIMs) pressure became more evident, with declining yield
on assets at 12.0% (9M 2017: 13.5%) putting pressure on NIMs growth (+38bps YoY
to 6.1%). Further down, Access booked N34.5 billion in impairment with specific
provisioning constituting 95% of impairment. Cost of risk and NPL ratio printed
at 1.7% and 4.8% respectively (2016: 1.2% and 2.1% accordingly).
decline in asset yields drives NIMs lower.
In the fourth quarter, asset yield moderated to 260bps QoQ to 7.8%.
Surprisingly, much of the moderation stemmed from asset yields on loans.
Consequently, despite a 257bps moderation in funding cost, the lower asset
yields led to a 37bps QoQ moderation in NIMs to 5.4%. In terms of funding cost,
Access reported a faster decline in interest expense (-30% QoQ) relative to
interest income (-12% QoQ), largely from a 60% QoQ drop in interest expense on
deposits, reflecting a 18% QoQ jump in CASA deposit. However, CASA as a share
of total deposit remained flat at 43%.
exposure drives asset quality deterioration.
In line with peers that have released thus far, higher provisioning in Q4 has
been a key theme. In our view, a sizable chunk of this stemmed from exposure to
9mobile which banks have had to take a hair-cut based on the disparity between
the carrying value and market value. Consequently, Access booked N27.3 billion
in impairment over Q4 (9mobile exposure: N40 billion) with cost of risk
expanding to 4.2% in the period (Q3 17: 0.5%).
Income line starts to cool off. Over Q4 17, NIR
declined by 41% QoQ to N20.4 billion. Much of the deceleration reflected a 39%
QoQ in trading income and a N12 billion FX revaluation losses. On the trading
income leg, the decline stemmed from FX trading income (largely realized gains
on derivatives) which moderated sizably to N3.8 billion in the quarter (Q3 17:
N56.6 billion) while FX revaluation losses possibly reflects translation of FCY
position from N305/$ to N330/$, which from our estimate, the bank has a
net-short FCY position of $450 million. To our minds, we expect to see a
sustained decline in the derivative line over 2018 as situations now seems
unappealing for such swap positions. Overall, the troika of lower NIMs and NIR,
alongside sharp increase in provisioning drove Q4 EPS lower by 67% QoQ to N0.19
– the lowest in 24 quarters (Q4 17E: N0.59).
Access is trading at a P/B of 0.65x which is at a discount to peers of
1.7x - ROE of 12%. Our last communicated FVE on Access is N12.70 which
translates to a NEUTRAL rating on the stock. We will revisit our numbers after
further analysis and discussion with management.