Culled—Proshare
August 24, 2017/Vetiva Research
o Strong FX income spurs top line growth
o OPEX pressure persists, up 38% y/y
o Loan book and deposits moderate, FY’17 forecast revised lower
o Board declares interim dividend of N0.25 per share
ACCESS released its H1’17 result reporting a strong 42% y/y growth in Gross Earnings (₦247 billion) – 12% ahead of our ₦220 billion estimate. In line with the trend observed in Q1’17, the impressive top line performance was supported by strong growth in both Interest and Non-Interest Income lines, up 43% y/y and 47% y/y respectively, with both beating Q1’17 run rates.
Notably, we highlight that whilst e-business income moderated significantly to ₦2.7 billion (H1’16: ₦18.8 billion), FX trading income rose to ₦59.0 billion vs. the loss of ₦11.1 billion recorded in H1’16. Similarly, Interest Expense rose markedly (a trend consistent across all other banks that have released so far), up 80% y/y and 21% ahead of our estimate. Nevertheless, Net Interest Income rose 21% y/y with NIM up 40bps to 6.7%. With NPL ratio contained at 2.5% and cost of risk at 1.0%, loan loss provision was flat y/y at ₦10.4 billion (Vetiva: ₦10.9 billion).
The key pressure point was however from Operating Expense – racing 38% y/y to ₦105.1 billion (Vetiva: ₦91.2 billion) following a 34% q/q rise. We highlight that the biggest rise came from Admin Expense which almost doubled over the period. Despite this, PBT rose 18% y/y to ₦52.0 billion – just in line with our estimate. However, with an effective tax rate of 24% vs. our estimate of 22%, PAT marginally missed our estimate, albeit up 17% y/y to ₦39.5 billion.
Estimates revised, TP revised higher to ₦9.66 (Previous: ₦9.60)
We revise our model to reflect the mild deviations across a few line items. Particularly, we cut our loan growth forecast to flat for FY’17 (Previous: 5%) as the bank continues to take a conservative stance. Also, we cut our deposit growth forecast to a 3% y/y decline (Previous: 5% growth) to reflect the H1’17 trend. Whilst we raise our Interest and Non-Interest forecast for the strong interest rate environment and the extraordinary FX gains respectively, we also revise our Interest Expense and Operating Expense in line with H1’17 run rates.
However, we maintain our loan loss expense estimate at ₦20.9 billion – translating to a CoR of 1.2%. Overall, our Target Price is little changed at ₦9.66 (Previous: ₦9.60). ACCESS trades at FY’17 P/E and P/B ratios of 3.6x and 0.6x respectively.
