Culled—–Proshare

August 20, 2016/Vetiva Research

Strong top line growth amidst cost containment, PAT up 26% y/y
ACCESS released H1’16 result showing impressive top and bottom line growth – 3% and 5% ahead of our estimates respectively. The result came in largely in line with the trend observed in Q1’16 with improved performance across most of the key line items. Whilst Interest Income was steady at N57 billion in Q2’16 (Vetiva estimate: N58 billion), a strong NonInterest Income (N37 billion), up 50% q/q ensured a 17% q/q growth in Gross Earnings.

Despite recording FX revaluation loss of N11 billion, NonInterest Income was spurred by fees and commission income from electronic channels, card products, and related services as a result of rise in the volume of card transactions. In line with recent trend, income from derivative instrument (N33 billion) continues to support earnings, following the $2 billion Forward and Swap contracts entered into by the bank in 2015 (with staggered maturity up to 2018).

Furthermore, despite an 11% q/q rise in Interest Expense (in line with the higher interest rate environment), the expense line remained contained y/y, down 14% to N44 billion. However, with a mild 10bps rise in NPL ratio to 1.9%, ACCESS recorded a N10.2 billion loan loss provision vs. our N6.5 billion estimate.

Despite inflationary pressure, Operating Expense came in flat y/y – 5% better than our estimate. Consequently, PBT rose 28% y/y to N50.0 billion – ahead of our N45.4 billion estimate. Overall, given an effective tax rate of 21% vs. our 17% estimate and prior year’s 20%, PAT (N39.5 billion) came in better than our N37.7 billion estimate; annualized EPS of N2.73 is tracking above Vetiva (N2.61) and Consensus (N2.10) estimates.

The Board of Directors have proposed interim dividend of N0.25 per share, translating to a dividend yield of 4.5%.

TP revised to N9.76 (Previous: N9.01)
We have updated our model and revised our forecast to reflect the positive earnings surprise. Whilst we note the FX revaluation loss recorded by the bank deviates from the trend observed across other banks (with most banks reporting revaluation gains), we highlight that this is largely due to the accounting treatment of the Swap transaction.

In line with Q2’16 spike, we raise our loan loss provision forecast to N24.5 billion (Previous: N20.4 billion) – translating to a 1.6% CoR. With a modest improvement in top line amidst contained cost, we anticipate an improvement in efficiency with a CIR 54% for FY’16 (Previous: 57%).

Overall, ACCESS trades at a discount to peers with 2016E P/E and P/B of 2.0x and 0.4x respectively.