ACCESS: Fundamentals Support Significant Upside Potential

Proshare

Wednesday, March 23, 2016 9:30AM /FBNQuest Research

Marked increase to our forecasts, even if still conservative
Following Access Bank’s better-than-expected Q4 2015 results, we are raising our 2016-17E earnings forecasts by an average of c.45%, and our price target by 50% to N8.3. The main drivers behind our earnings upgrade are increased funding income and a reduction to our opex forecasts.  

That said, we are still quite conservative on both metrics: our y/y increase in net interest margin of 20bps compares with guidance of at least 100bps, while we have modelled close to a 50% probability of success on the bank’s target of c.N21bn in opex savings (eq. to a 15% cut).

Our conservative forecasts explain why our 2016E ROAE forecast of 14.4% trails management’s guidance of 22%. Notwithstanding, given the sell-off ytd (-18.6%, 9% worse than the ASI), and with the shares on a current P/B multiple of just 0.27x, we continue to reiterate our Outperform rating.

Q4 2015 PBT up strongly; well ahead of our forecast

Access Bank’s Q4 2015 PBT of N14.7bn grew 43% y/y while PAT of N15.7bn grew at a slower rate of 23% y/y because of base effects stemming from trends on the other comprehensive income (OCI) line. In Q4 2014, Access had reported a N5.3bn gain on the OCI line compared with a loss of –N2bn in Q4 2015.

This result in Q4 2015 more than offset the positive impact of a tax rebate of N3bn. The strong y/y growth in PBT was driven by both revenue lines – funding income grew 23% y/y while non-interest income grew 45% y/y. In addition to revenue growth, Access also reported a marked fall in loan loss provisions, of -43% y/y to N2.7bn, very similar to what it reported in Q3; this provisions charge implies a cost of risk in the quarter of around 1%.

The one negative in the results was opex which grew materially, by 41% y/y to N39.4bn. Relative to Q3 2015 results, PBT was down sharply, by -31% q/q while PAT was down only slightly, by -3% q/q. While funding income grew 6% q/q, non-interest income was weaker q/q by -17%. The q/q decline in PBT can be put down to base effects, given very strong results in the previous quarter(s) on this line.

Nonetheless, compared with our estimates, the overall picture across the board was very strong. PBT and PAT beat our forecasts by 54% and 92% respectively. Both revenue lines surpassed our expectations and loan loss provisions were half of what we had modelled. Only opex surprised negatively, coming in 26% higher than our forecast.

  

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