October 23, 2018/Cordros Report
ACCESS released its 9M-18 account late yesterday, showing 37% y/y and 33% q/q growth in EPS to NGN0.80 in Q3-18. In the 9-months period, PAT was up 12% y/y, at NGN62.91 billion.
- Mixed performance across income lines: Gross earnings grew 3%, supported by a surge in trading income (+141%) as well as growth in interest income (+5% y/y). The uptick in interest income – the lowest of the three quarters so far this year — was driven by improved earnings on loans (+5.7%), amidst growth in total loans by 4.33%, vs. H1-2017 (YtD: +1.05%). Overall, annualized asset yield, by our estimates, inched lower by 96 bps q/q and -29 bps y/y to 12.01%.
- Still elevated cost of funds: Interest expense in the quarter was largely driven by the higher interest paid on deposits from financial institutions – which was 2.34x bigger than in similar period last year. As a result, cost of funds printed at 6% (+41 bps y/y, +51 bps q/q) in the quarter. Together with the slower pace of growth in interest income, net interest income declined by 2% y/y in the quarter, for the first time this year, and NIM contracted by 70 bps y/y and 57 bps q/q to 5.38%.
- Flat NIR growth: Non-interest income (+0.35% y/y), on the other hand, was flattish in the quarter, following declines in net fees & commission income (-4% y/y) and forex income (-93% y/y). Over the 9-months period, gross fee and commission income increased by 12% y/y, with growth in credit related fees and commissions (+26% y/y) making the most contribution.
- On asset quality, similar to the previous two quarters, impairment charges (-59% y/y) continued to decline, translating to a lower cost of risk (-68 bps to 0.54%) in the period, as against 0.7% in H1, and 1.7% in FY-17.
- Lower Opex and tax charge boost bottom line: While pre-tax profit remained healthy at NGN24.43 billion (+17% y/y) in the quarter – supported by the 6% y/y drop in opex – a much lower tax charge (-71% y/y) gave further support to the 37% PAT growth posted. Similar to Q2, the effective tax rate in the quarter remained at a meagre 4.67% (Q2: 4.86%) in the quarter.
Comment: ACCESS’ Q3-18 result is impressive. Annualized, the NGN83.88 billion net profit reported as at 9M-18 is above Bloomberg consensus’ estimate for the full year by 7.8%, but lags our forecast by 2.25%. We expect a positive reaction from investors in today’s trading session. Our estimates are under review.
| Income statement (N’bn) | 9M-18 | 9M-17 | y/y | Q3-18 | Q2-18 | Q3-17 | q/q | y/y |
| Gross earnings | 374.89 | 364.69 | 3% | 122.09 | 252.81 | 118.36 | -52% | 3% |
| Interest income | 274.50 | 245.87 | 12% | 87.81 | 91.09 | 83.97 | -4% | 5% |
| Interest expense | (151.55) | (124.40) | 22% | (50.16) | (50.45) | (45.54) | -1% | 10% |
| Net interest income | 122.95 | 121.47 | 1% | 37.65 | 40.64 | 38.43 | -7% | -2% |
| Net fee and commision income | 43.19 | 38.43 | 12% | 13.12 | 14.35 | 13.61 | -9% | -4% |
| Net trading income | 75.10 | (41.22) | -282% | 15.54 | 31.90 | (37.58) | -51% | -141% |
| Other income | 11.68 | 5.15 | 127% | 1.42 | 5.04 | 0.93 | -72% | 52% |
| Foreign exchange income | (29.58) | 116.46 | -125% | 4.20 | (26.96) | 57.43 | -116% | -93% |
| Non-interest income | 100.39 | 118.81 | -16% | 34.27 | 24.32 | 34.40 | 41% | 0% |
| Total operating income | 223.34 | 240.29 | -7% | 71.93 | 64.97 | 72.83 | 11% | -1% |
| Loan impairment charges | (8.35) | (12.82) | -35% | (1.01) | (2.38) | (2.46) | -57% | -59% |
| Total operating expenses | (144.72) | (154.55) | -6% | (46.49) | (44.18) | (49.50) | 5% | -6% |
| Profit before income tax | 70.27 | 72.91 | -4% | 24.43 | 18.40 | 20.86 | 33% | 17% |
| Income tax expense | (7.36) | (16.51) | -55% | (1.14) | (0.89) | (3.93) | 27% | -71% |
| Profit after tax | 62.91 | 56.40 | 12% | 23.29 | 17.51 | 16.94 | 33% | 37% |
