Tuesday, March 27, 2018 /09:25 AM /FBNQuest
10-12% cut to our 2017-18E EPS forecast and price target
Access Bank’s (Access) 2018 ROE guidance of 20% implies that the bank would have to deliver PAT growth of c.13% y/y to c.N110bn. On its conference call, management was confident that a reduction in funding cost via the repricing and gradual winding down of expensive structured funds would translate to a 70bp expansion in NIM, and that any ‘lost’ revenue on derivative income as its fx swaps mature could be replaced by funding income. We are more conservative than management; our 2018E NIM forecast is flattish y/y as we expect that a lower yield environment in general will limit the benefits accruing from the repricing of liabilities.
Consequently, we have cut our 2018-19E EPS forecasts by around 10% on average and our price target by around 12% to N10.8. Our new forecast implies a 2018E ROAE of 12.4%, considerably lower than guidance. On asset quality, management sees the 38% provision taken on its 9mobile exposure as adequate, and as such guides to a cost of risk of 1.5% (vs 1.7% in 2017).
It also expects the bank’s NPL ratio to improve slightly from the 4.8% reported as of end-2017. We find both guidance plausible. At current levels, Access Bank shares are trading on a 2018E P/B multiple of 0.59x for 12.7% ROAE in 2019E. These compare with the average multiple of 0.9x for 14.1% ROAE that our universe of banks is trading on. We retain our Neutral recommendation on the stock.
Q4 2017 PBT down 67% y/y
Access Bank’s Q4 2017 PBT declined by 67% y/y to N7.2bn. The key drivers behind the marked drop in profitability were a -50% y/y reduction in noninterest income (fx swaps) and a 125% y/y spike in loan loss provisions stemming from a N19bn charge relating to its 9mobile exposure. These negatives completely offset funding income growth of 28% y/y and a 21% y/y decrease in opex (over-accrual as of 9M 2017 explains the softer opex in Q4).
Further down the P&L, the y/y contraction in PAT narrowed to -9%, thanks to a positive result of N8.2bn in other comprehensive income (OCI).
Sequentially, PBT and PAT fell by -66% q/q and -57% q/q respectively. Again the spike in provisions and a subdued non-interest income line were primarily responsible. Compared with our estimates, PBT missed by 57% because of negative surprises in non-interest income and provisions. However, thanks to the OCI gain, PAT was in line with our N13.3bn forecast. The bank’s PBT also trailed consensus’ 2017 PBT forecast of N91.4bn.