Wednesday, March 11, 2020 / 09:53
AM / FBNQuest Research / Header Image Credit: The Trent
4% cut to our 2020E EPS and price target
Access Bank's (Access) Q4 2019 PBT missed our forecast by 56% due to negative surprises in non-interest income and loan loss provisions. The negative surprise in non-interest income was underpinned by a net fx loss of -N83.9bn in 2019 (vs. -N23.8bn 2018) due to unwinding of derivative contracts most of which came through in Q4, and a decline in gains on fair valuation of equity investments.
Consequently, we have cut our 2020E EPS forecasts by c.4% and our price target by a similar margin to N16.0. On its conference call, management provided a 2020E NIM guidance of 8.0% (up +140bps y/y). It is also positive that prevailing macro-economic headwinds are likely to be supportive of demand for derivative products and by extension non-interest income. Regardless of management's optimistic outlook, our forecasts and assumptions are more conservative. Following the negative surprise in non-interest income, we have cut our 2020E forecast for the line by-25%. We have also cut our 2020E NIM forecast by c.120bps in view of the low interest rate environment.
As such, our 2020E funding income forecast is up by a mere c.5% and implies a growth of 4% relative to 2019. On the back of these revisions, we forecast a 2020E PBT growth of 10% y/y, implying an ROAE of16.7%, much lower than management's 20-25% guidance. On a relative basis, the shares are trading on a 2020E P/B multiple of 0.4x for 17.1% ROAE in 2021E. These compare with the 0.5x average multiple for 17.2% ROAE that our universe of stocks is trading on. Our new price target implies a potential upside of 132% from current levels. As such, we retain our Outperform rating on the shares.
Q4 PBT down -63% y/y
GTB's Q4 PBT grew by c.19% y/y, driven by an 18% y/y increase in pre-provision profits and a -46% y/y reduction in loan loss provisions. Of the two revenue lines that contributed to pre-provision profit growth, the non-interest income line which grew by 26% y/y was the stronger.
However, funding income also grew by 13% y/y. PAT grew by 19% y/y, thanks to a positive result of N4.2bn in other comprehensive income (OCI). Sequentially, PBT increased by 11% q/q, driven by similar growth in pre-provision profits. However, PAT advanced by 26% q/q because of the positive result in OCI.