October 30, 2023/United Capital Research

Access Holdings Plc (the Bank, or the HoldCo) released its 9M-2023 results, showing that Gross Earnings (GE) crossed the N1.0tn mark. The growth in the top line was driven by increases in its interest income, which grew by 83.4% y/y. Overall, profitability improved as Profit Before Tax (PBT) and Profit After Tax (PAT) grew by 100.2% y/y and 83.1% y/y, respectively. Below is the9M-2023 earnings review  and our FY-2023 expectations. 

Resilient Core Earnings
Access Holdings Plc’s Interest Income expanded from N571.7bn to N1.0tn due to a 246.3% y/y increase in interest earned on investment securities, given the elevated interest rate environment in the country. Additionally, the 158.3% y/y and 30.2% y/y growth in interest earned from loans & advances to banks and customers, respectively, spurred the advancement in interest income. This is on account of the 66.5% y/y and 31.4% y/y growth in the Bank’s loan book to other banks and customers, which settled at N758.8bn and N6.7tn, respectively, in 9M-2023.

On the other hand, we saw a significant jump in Interest Expense from N291.5bn recorded in 9M-2022 to N658.5bn in 9M-2023 (up 125.9% y/y). This is on the back of increases in interest paid on deposits from financial institutions (266.1% y/y) and customers (92.3% y/y). As a result of the increase in interest expense, the growth in Net Interest Income (NII) narrowed by 39.1% y/y from N280.3bn to N390.0bn. Notably, the Bank’s total deposits grew by 43.7% y/y in the period under review from the N11.3tn recorded in Dec-2022.

For Non-interest Income, fees and commission income grew by 55.9% y/y from N133.5bn reported in 9M-2022 to N208.2bn in 9M-2023. This growth is due to the 100.4% y/y and 42.4% y/y increase in commission earned on credit-related fees and foreign currency-dominated transactions. In addition, the depreciation of the Naira from N437.0/$ in 9M-2022 to N755.3/$ in 9M-2023 supported the 70.9% y/y advancement in fair value and foreign exchange gains.

On efficiency, operating expenses grew by 37.8% y/y from N376.9bn recorded in 9M-2022 to N519.4bn in 9M-2023, buoyed by the elevated inflationary pressures and deteriorating macroeconomic conditions. Remarkably, administrative and IT & e-business expenses rose by 39.2% y/y and 52.6% y/y to N43.4bn and N52.7bn, respectively. Additionally, the 30.5% y/y increase in the AMCON surcharge to N68.8bn contributed to the rise in operating expenses. However, the Bank was able to offset the increase in its operating expenses as the Cost-to-Income Ratio (CIR) fell slightly by 6.0ppts from 65.3% in 9M-2022 to 59.3% in 9M-2023. This is on the back of the 51.7% y/y expansion in operating income from N576.8bn to N875.2bn.

Overall, Access Holding Plc recorded an improvement in its profitability as the Bank’s PBT rose to N294.4bn in 9M-2023, up by 100.2% y/y, compared to N147.1bn recorded in 9M-2022. However, the 327.4% y/y climb in taxes for the period weighed on the Bank’s PAT, which settled at N250.4bn (up 83.1% y/y, from N136.8bn). Lastly, the trailing 12-month Return on Average Equity (ROAE) rose slightly to 18.6% in 9M-2023, previously 16.8% in 9M-2022.

Strong Balance Sheet
Total Assets expanded by 42.7% y/y from N15.0tn to N21.4tn, supported by loan book growth, which surged by 34.3% y/y from N5.6tn to N7.5tn. Additionally, investment securities and derivative financial assets settled at N4.0tn and N1.7tn, up 45.1% y/y and 327.5% y/y, respectively. In terms of asset quality, impairment charges climbed by 16.8% y/y to print at N61.8bn in 9M-2023. The bulk of this arose from allowance for impairment on loans and advances to customers, which accounted for 80.9% of the total figure. Lastly, Access Holding’s total Loan-to-Deposit Ratio (LDR) dropped further from 49.4% in 9M-2022 to 46.1% in 9M-2023 as the bank failed to meet the Central Bank’s regulatory minimum of 65.0%.
 
Long-term prospects: Strong Potential for Growth
Going forward, we expect a sustained expansion in Access Holdings Plc’s topline growth, following growth in interest and non-interest income. We anticipate that the elevated interest rate environment will keep supporting higher income earned on interest-bearing assets. Conversely, we note that this may result in higher interest expenses on customers’ deposits, thus weighing on the Bank’s overall Net Interest Margin (NIM).

Additionally, we expect sustained growth in the Bank’s non-interest income in H2-2023, arising net trading income on financial assets and potential FX gains. This will ensure overall profitability for Access Holdings Plc. However, we note that challenges which may arise from tough regulatory, monetary, and macroeconomic environments may serve as potential headwinds to the revenue growth of the Bank. In addition, we expect rising inflationary pressures to continue to weigh on operational efficiency and overall profitability.

Lastly, the recent acquisition of a majority stake in Angola’s Finibanco and the acquisition deal struck with Standard Chartered to acquire some of its African subsidiaries (Angola, Cameroon, Gambia, and Sierra Leone), serve as a great upside for the HoldCo. We note that when these deals are finalised and consolidated, it will expand Access Holdings’ balance sheet (in terms of total assets), as well as increase its revenue generation.

That said, we believe Access Holdings Plc is well positioned (as seen in its 9M-2023 results) to sustain the performance trend in its financial and non-financial metrics for the remaining months of the year.  As a result, we revised our FY-2023 Target Price (TP) to N20.0/share, 18.0% upside from the current price of N16.95. Thus, we maintain a BUY rating on the ticker.