Culled—Proshare

August 23, 2016/FBNQuest Research

Additional upside post earnings upgrade
Following Access Bank’s Q2 2016 results, we have increased our 2016-17E PBT estimates by an average of 22%. Our new 2016E PBT forecast of N96bn implies a y/y growth of 28%.

Despite continued strong fx swap income, we still expect non-interest income to be down y/y (-9%) due to base effects (2015 growth was +90% y/y). Having said that, our revenue expectations for 2016E are still healthy.

Combined with a forecast -5% y/y decline in opex, we expect these to more than offset a marked rise in loan loss provisions (+61% y/y; based on a 1.5% cost of risk assumption) to lead to our double-digit PBT growth expectation.

We have increased our price target by 26.3% to N9.7 as we roll over our valuation to 2017. Fx revaluation gains below the line (translation effects) combined with our (underlying) earnings upgrade and the roll-over effect more than offset an increase of 200bps to our risk free rate assumption to 14.5%.

Year to date, Access Bank has gained 21%, outperforming the market by almost 24%. Our new price target implies further upside potential of 65%. We retain our Outperform recommendation.

Q2 2016 earnings boosted by non-interest income and OCI
Access Bank’s Q2 2016 PBT and PAT rose by 21% y/y and 192% y/y respectively. The significant increase in the bottom line was mainly due to a positive result of N36bn on the other comprehensive income line.

The latter came from fx translation gains on foreign subsidiaries as well as fair value gains on available for sale securities. Profit before provisions was up 11% y/y and more than offset a 56% y/y rise in provisions. Opex was down slightly, by -1.4% y/y. Of the two income lines, net interest income grew 38% y/y while non-interest income fell -5% y/y, reflecting base effects.

Access recorded an fx revaluation loss in H1 of –N15bn, unlike its peers, but the fx-related swap income (N33bn) has to be taken into consideration. The q/q performance was similar and dominated by the OCI line and non-interest income.

Relative to our forecasts, the results were well ahead of expectations because we did not forecast any gain/loss on the OCI line.

Although net interest income was only slightly ahead of our N33bn forecast, the non-interest income result was 46% ahead of our estimate, leading to profit before provisions coming in 22% higher than we had expected.

While loan loss provisions of N7.8bn negatively surprised by 82%, the better-than-expected revenues were more than enough as an offset, leading to a positive surprise of 49% on the PBT line (opex was in line).