Stock & Analyst Updates | |
Stock & Analyst Updates | |
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Wednesday, October 30, 2019 /08.00PM /
TheAnalyst/ Header Image Credit: New Mail Nigeria
Access Bank Plc, had a strong 9-month earnings performance by September 2019, however,
warm feelings about the bank's profit has been muted by analysts concerns over
the +47.70% rise in the bank's other
operating expenses. A chunk of the added
expense was as a result of the rise in its AMCON surcharges which went from N17.49bn
in 9 months 2018 to N22.66bn in 9 months 2019, representing a hit of a further
N5bn to the bank's Income Statement for the year 2019.
Highlights
Income Statement
Statement of Financial Position (3 months to September 2019)
The Little Big Issue of Profitability
Access Bank has been able to sustain major underlying profitability despite
expectations that its merger with erstwhile Diamond bank would take its toll on
the bigger entities operating profit as top line earnings swells steadily. Access Banks profit after tax closed the first 9 m0nths of the year 2019 at
N94.05bn (+49.21% higher the than its H1
2019 result) reinforcing a trend
established in the second quarter of the year which saw the bank post the third
largest after-tax profit for deposit money institutions listed on the Nigerian
Stock Exchange (NSE) after GT Bank (N99.13bn) and Zenith Bank (N88.88bn) in H1
2019(see
chart 1 below).
Chart 1 H1 2019 Profit After Tax
of Selected Banks
Source: Half Year (H1) 2019
Financial Reports of Selected Banks
With the
bank's 9 months 2109 performance analysts are contented with a forward year end
(FYE) 2019 profit after tax performance in the region of N135bn. This plays nicely to the strategy of investors
who had early on shorted the bank's stock at the commencement of its merger
with Diamond Bank. Access Bank's recent result should add a few more basis
points to the equity returns of those that bought the stock late in 2018 or
early in 2019.
Comparative
top line earnings for Access Bank has expectedly been strong post-merger as the
bank's H1 2019 result showed a +28% Y-o-Y
growth in gross earnings, the fastest for any of the banks listed on the NSE (see Table 1
below).
Table 1 Gross
Earnings Growth Rate of Selected Banks H1 2019
Gross Earnings |
||||
Bank |
H1'19 (N'm) |
H1'18 (N'm) |
% Change |
|
Access Bank |
324,376 |
253,024 |
28.20% |
|
Ecobank (ETI) |
405,202 |
384,588 |
5.36% |
|
FBNH |
294,231 |
293,336 |
0.31% |
|
FCMB |
89,786 |
83,925 |
6.98% |
|
Fidelity Bank |
103,655 |
92,295 |
12.31% |
|
GTBank |
221,870 |
226,632 |
-2.10% |
|
Stanbic IBTC |
117,374 |
114,207 |
2.77% |
|
Sterling Bank |
74,499 |
77,608 |
-4.01% |
|
UBA |
293,690 |
257,918 |
13.87% |
|
Union Bank |
76,017 |
83,333 |
-8.78% |
|
Unity Bank |
20,547 |
17,492 |
17.47% |
|
Wema Bank |
40,835 |
32,034 |
27.47% |
|
Zenith Bank |
331,586 |
322,201 |
2.91% |
|
Source: Financial Statements of Selected Nigerian Banks H1' 2019 |
Strengthening Statement of Financial Position
The
Access Bank-Diamond Bank merger has increased the bank's overall size (fixed
and risk assets) and provided it with some flexibility to withstand systemic
shocks as a result of greater retail market deposit and penetration. Harmonized
digital footprint also has represented a boon for the merger as technology
dominance (with a fully functional tech foundry at play) has enabled the bank
evolve cutting edge service delivery on a robust digital platform. Glitches still exist with deployment but
economies of scale and efficiency can quickly be realized.
The
bank's cost of risk (CoR) has gradually declined since FYE 2017 dropping from
1.7% in 2017 to 0.7% in 2018 and 0.5% in Q1 2019 (see Table below). The
bank has also gradually been able to reduce its cost to income ratio from 62%
in 2018 to 53% in Q1 2019.
Table 2 Access
Bank Operating Ratios 2017-Q1 2019
Access
Bank |
|
||
Ratios |
2017 |
2018 |
Q1 2019 |
Cost of Risk |
1.7% |
0.7% |
0.5% |
Capital Adequacy Ratio |
20.1% |
19.9% |
19.1% |
Liquidity Ratio |
47.2% |
50.9% |
47.6% |
Cost-to-Income |
61.9% |
62.2% |
53.2% |
NPL Ratio |
4.8% |
2.5% |
10.0% |
Source: Access Bank 9 months 2019 Financial
Statement, NSE
Liquidity
Thoughts
The
bank's cash to interest coverage ratio (CICR) has stayed flat of the past nine
months rising by a blip from 1.66% in December 2018 to 1.67% in September 2019,
the higher the cash cover the more liquid the bank, apparently the recent bank
merger Access Bank and Diamond Bank has made liquidity slightly inflexible
upwards.
Leverage and Its Concerns
Total
assets to liabilities of most banks have clustered around similar rates in the
last 9 months. The sectors Total liabilities to Total assets ratio (for H1 2019,
see Chart 2 below) concentrated around 90% with some banks dropping slightly
lower and others tipping slightly higher, the industry outlier in H1 2019,
however, was Unity Bank Plc with a ratio of 191%, this was the obvious
consequence of a severely weak equity position. Analysts note that the higher
the ratio the lower the bank's equity and the higher its leverage. Access Bank's H1 total liability to total assets ratio was 91%, in 9 months 2019 the
ratio settled at the same 91% ratio. Typically banks leverage at least seven
times their average three-year deposit levels meaning that Access Bank still
has headroom to increase its leverage, without hurting its balance sheet
stability, if it so desired.
Nevertheless, with total assets increasing by +33.53% and total liabilities growing by +34.30% between December 2018 and September 2019, the bank still remains in a comfortable place.
Chart 2
Total Liabilities to Assets Ratio of Selected Banks H1 2019
Source: Financial Statements of Selected Nigerian Banks H1' 2019 |
Swotting The
Numbers
Access Bank, Nigeria's largest bank by total asset, has 9 months 2019 numbers that
feed into an interesting Strengths, Weaknesses, Opportunities and Threats (SWOT)
framework (see illustration 1 below):
Strength: Strong 9 months 2019 top and bottom line earnings
growth
Weakness: Escalating operating expenses. OPEX went up by +25% three months to September 2019 and remains a
part of the statement of financial position that the bank needs to watch
closely
Opportunities: Foreign expansion of operations reduces country risk exposure to slow economic growth in Nigeria. The bank has applied for approval to acquire majority interest in a Kenyan bank and has received "no objection" approval by the CBN. The next hurdle has been crossed with the Kenyan Competition Commission approving Access Bank's purchase of 93.57% of the equity of Transnational Bank Plc, Kenya’' 36th largest bank by assets. Transnational Bank has 28 branches with 97,000 customers. So far, the Kenyan foray looks like a viable proposition if the new management can reverse Transnational’s weak earnings situation; in the course of the year the bank made a loss of Kshs 98m.
Threats: Intermittent Central Bank (CBN) regulatory circulars
continue to disrupt planning and strategy as new circulars constrain operations
and set new guideline for lending and use of liquidity. The consequence has been
significant for banks in the 9 months of 2019 as several deposit money banks
(DMBs) were penalized for not being able to meet the CBN-imposed LDR threshold
of 60% (which has since been revised to 65% by December 2019) (see chart 3
below).
Chart 3 CBN Debits to Banks in
Default of 60% LDR Requirement Sept. 2019
Source: Central Bank of Nigeria (CBN)
Illustration 1 Access Bank Plc 9 Months 2019 Result SWOT Analysis
Graph - One Year Share Price Movement
Related News
1.
Access Bank Plc - Huge FX Gains Buoy
Q3 2019 Performance
2. Access
Bank Plc - Acquisition Of Controlling Equity Interest In Transnational Bank
Kenya Plc
3. Access
Bank Plc - Funding Cost Disappoints In Q3 2019
4. ACCESS
Declares N90.74 billion PAT in Q3 2019 Results,(SP:N7.10k)
5. Access
Bank Plc Notifies Of The Company's Board Meeting And Closed Period
6. NSE Lists
Access Bank's N30bn 7-Year 15.5% Fixed Rate Subordinated Unsecured Bonds Due
2026
7. Fitch
Rates Access Bank's Tier 2 Subordinated Debt Final 'A(nga)'
8. Access
Bank Plc To Issue N30bn 15.5% Tier 2 Bond
9. Access
Bank Plc - NIM Improvement Supports Earnings
10. Access
Bank To Submit H1 2019 Audited Financial Statements By Sept 15, 2019
11. Moody's -
Access Bank To Pay off $200m Bond Issued By Diamond
12. Access
Bank Rebutes Acquisition Talks With Union Bank of Nigeria
13. Access
Bank 'B and B' Ratings Affirmed; Outlook Stable
14. Access
Bank vs Japaul Plc : FHC Judgment On Mareva Order And Jurisdiction
15. Japaul
Plc's Access Bank Burden: Excessive Charges Unhinge Relationship As FHC Vacates
Mareva Order
16. Access
Bank Lists Pioneer N15bn Nigerian Green Bond At FMDQ OTC
17. Creating
One of Africa's Leading Retail Banks - Launch of the New Access Bank Brand
18.
Access Bank Ratings Affirmed; Outlook Stable; Diamond Bank Ratings
Discontinued On Effective Merger