August 26, 2016/Cordros Research

Access Bank Plc (ACCESS) released its half year 2016 earnings report earlier on the 19th of August 19, 2016. The Bank reported an EPS of N1.61, up from N1.36 in the previous year. The result outperformed our estimate, with PBT growth of 27.9% and RoAE of 19.8%. Net interest income (+42.0% y/y) came in stronger than expected (+3.6% variance) while non interest income declined 11.2% y/y but was 11.9% higher than our estimate as it was supported by gains from FX derivatives (N33 billion) which offset FX revaluation losses (N11 billion) suffered during the period. The bank also declared an interim dividend of N0.25 (HY’15: N0.25) with a closure date September 6, 2016 and a payment date of September 13, 2016. Following the strong outperformance, we have raised our TP to N9.28 while maintaining our BUY rating on the stock.

For 2016FY, both EPS and RoAE have been raised to N2.46 and 18.3% from N1.99 and 15.0% previously. We expect a slight reduction in net interest margin (NIM) which improved to 6.4% in H1-16, from 5.6% in the previous year. The major driver for y/y improvement in NIM was a similar improvement in cost of funds (down to 3.6% from 5.3%). Management credited a favourable deposit mix (CASA grew 20.3% to ₦1.2trn as at Jun’16 from ₦977bn in Dec’15) for the improved CoF, indicating some sustainability. Nonetheless, we believe the tight liquidity environment will drive costs of funds higher in H2’16. Given the bank still has a sizeable (US$800 million) derivative exposure, we incorporated potential gains from the further naira devaluation into our forecast.

We expect impairment to rise further in the H2’16 on account of (1) the impact of the currency depreciation on existing FCY NPLs (management disclosed that about 30% of NPLs were foreign in currency as at H1’16); and (2) continued pressure in the general commerce segment given the lack of significant improvement of dollar liquidity following the floating of the naira.