ACCESS: NIR gains and lower taxes power 2015 earnings

Proshare

Friday, March 18, 2016 10:25AM /ARM Research

·         Access Bank Plc. (Access) released audited FY 2015 results, wherein gross earnings rose 38% YoY (9M:+42%) to N337 billion while PBT and PAT climbed 44% (9M: +43%) and 53% (9M: +34%) YoY to N75 billion and N65 billion respectively.

·         In addition, Access announced a final dividend of N0.30 per share (FY 15E: N0.35), bringing FY 15 total payout to N0.55 (FY 14: N0.60). The final dividend amounts to ~7% dividend yield at current pricing.

Lower asset yields and fee income pressures weigh on gross earnings

·         In line with softening non-interest revenue (NIR) trends across the sector, (GTB: -6%, Zenith: -84%, UBA: -63%) Access reported a 17% QoQ contraction in the item to N27.3 billion. Assisted by softer interest income (-5% QoQ to N56.3 billion), the slide in NIR drove gross earnings lower (-10.3% QoQ to N79.8 billion).

·         Looking through the sub-parts, NIR weakness stemmed from contraction across fees (-30% QoQ) and trading (-9% QoQ), FX revaluation losses (N574 million) and negative other income.

·         Though loan growth quickened in Q4 (+6.6% QoQ) lower asset yields (-150bps QoQ) implies Access, as with Tier I peers, re-priced loans downwards post the MPR cut leading to moderation in interest income.



·         Given Access’ sizable share of term deposits (42% of total deposits), the switch to an easing monetary policy stance helped drive a moderation in funding cost with interest expense declining 20% QoQ and annualized WACF contracting 150bps QoQ to 4.3%.


Tax write-back offsets impact of topline weakness

·         Largely reflecting higher personnel expenses (+30% QoQ), opex rose 8% QoQ to N39.4 billion which combined with gross earnings contraction drove deterioration in cost-to-income ratio (+9pps QoQ to 69%).

·         Despite the weaker macro climate, Access reported flat QoQ movement in loan loss charges to N2.7 billion with no change in annualized cost of risk (0.8%) and NPL (1.7%) from Q3 15.



·         Though Q4 15 PBT shrank 31% QoQ to N14.7 billion , N3 billion tax writeback over the quarter drove PAT 6% higher QoQ to N17.8 billion. Correspondingly, PBT margins are 5.5pps lower QoQ (+3pps YoY) at 18% whilst PAT margins are 3.4pps higher QoQ (+11pps YoY) at 22%.

·         On an FY basis, Access’s strong bottom-line stemmed from stronger derivative gains on HFT book (N52billion) and lower effective taxes (-5pps to 12.2%) which boosted ROE 390bps to 20.4% from 2014.

·         Going into 2016, the slowdown in economic growth and accommodative monetary policy stance should temper risk asset creation. Furthermore, as the forward contracts which spurred 2015’s derivative gains mature, NIR should contract YoY. Overlaying the foregoing with increased prospect for asset quality deterioration poses concerns over earnings trajectory in 2016. Nonetheless, sizable capital buffers (CAR: 19.5%) which should provide cushion in the tempered economic environment and low share of upstream O&G assets total loans are positives for Access in 2016.

·         Access trades at a current P/E and P/B of 1.6x and 0.3x respectively which are both at discount to peer average. On current pricing, the 34% upside implied in our FVE is at N5.55 translates to a STRONG BUY rating.

·         Conference call is scheduled for Tuesday, 22 March 2016 at 15:00hrs Lagos time



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