Monday, October 26, 2015 09:13AM / FBN Capital Research
Raising 2015E EPS by 12.4%:
A significant positive surprise on the non-interest income line for the third consecutive quarter by Access Bank (Access) has led us to increase our 2015E EPS forecast by 12.4%
Although management expects a softer Q4 vs a 9M quarterly average of N34bn in non-interest income, we expect at least N20bn in Q4. The increase to our non-interest income forecast more than offsets our decision to raise our opex forecast by 6% because of the negative trend we saw in the Q3 results.
Management will need to show more evidence that it will get a grip on the surging opex (9M +38% y/y) to convince us that the cost-to-income ratio can improve beyond 60%. For 2016E, we have kept our EPS forecast broadly unchanged on the back of a more subdued outlook for loan growth, leading to an -11% cut to our funding income estimate.
This unchanged EPS forecast explains why we have kept our price target at N7.1. We believe concerns around asset quality are among the major factors weighing on Access shares (-24% ytd vs ASI’s -13.4%). We think these concerns are overblown. Our model already incorporates a conservative cost of risk assumption of at least 1.5% going forward (vs 1.0% guidance for 2015E).
Q3 2015 PBT up strongly y/y:
Access Bank’s Q3 2015 PBT and PAT grew by 45% y/y and 44% y/y to N21.3bn and N16.2bn respectively, driven by non-interest income (+114% y/y), similar to what we saw in Q2 (gains on fx swaps were the key driver in Q2). To a lesser extent, a -23% y/y decline in loan loss provisions also helped.
In contrast to the performance in non-interest income, funding income was up by a mere 2% y/y. Although interest income grew by 17% y/y, the growth on this line was almost completely offset by a 37% y/y growth in interest expense.
Sequentially, both profit before provisions and PBT were down by -5% q/q and -6% q/q respectively, because non-interest income declined by -16% q/q, purely down to base effects.
Compared with our estimates, PBT and PAT beat our forecasts by 67% and 55% respectively, mainly because of non-interest income surprised positively (by 42%), and to a lesser extent, loan loss provisions were almost half of what we were expecting.