Culled—Proshare

November 2, 2016/FBNQuest Research

Earnings and price target trimmed; reiterating Outperform rating
Following Access Bank’s Q3 2016 results, we have cut our 2016-17E earnings estimates by an average of 8.3% and our price target by 7.2% to N9.0. These cuts largely reflect the negative surprise in operating expenses in the Q3 results which management blamed on inflation and the impact of naira devaluation.

Changes to our revenue estimates are modest as the results were close to our forecasts. Although the positive surprise in loan loss provisions was significant, we have limited the extent of the surprise that we carried forward given the continued weakness in the broader operating environment.

While we acknowledge that Access has done a remarkable job keeping its asset quality ratios stable, the risk of a large negative surprise is still high in our view. As such, our Q4 loan loss provisions forecast of N9.1bn represents a 330% q/q increase or 122% compared with the quarterly run-rate so far this year.

Management’s cost of risk guidance of 1-1.2% (vs 1% previously) is better than our 1.3% estimate. Notwithstanding the above, and despite a ytd gain of c.17% (ASI: -5%), our reduced price target offers a healthy upside potential of 59%. A dividend yield of close to 10% implies a combined total return of almost 70% from current levels. We reiterate our Outperform recommendation.

Q3 2016 results mixed
Access Bank’s Q3 2016 PAT grew 30% y/y to N21bn, much faster than the modest 3% y/y growth in PBT to N22bn. The main driver behind the strong PAT growth was other comprehensive income (OCI) of N3.9bn (in Q3 2015 the OCI line came in at –N452m).

Returning to the PBT line, the modest growth was down to a surge in opex (+23% y/y) which offset much of the 14% y/y growth in profit before provisions and a -20% y/y decline in loan loss provisions.

Regarding the performance of the different revenue lines, net interest income grew 37% y/y to N38bn while non-interest income fell slightly, by -5% y/y to N31bn. Both revenue lines were slightly better than we had expected.

Sequentially, PBT fell by -20% q/q while PAT fell more, by -61% q/q, because the OCI line was much weaker q/q (-89%) than Q2. Compared with our estimates, both PBT and PAT missed by 13%.

This was purely down to opex coming in 29% ahead of our estimate. As aforementioned the revenue lines were healthy and slightly above expectations. In addition, loan loss provisions surprised positively, coming in 61% below our forecast.