November 18, 2024/Cordros Report
Access Holdings Plc continues to leverage the HoldCo’s robust asset base (NGN41.10 trillion) to deliver sturdy income growth across contributory lines. In 9M-2024, the group’s interest income surged by 128.7% y/y to NGN2.40 trillion, marking the largest print across the sector. The stellar growth in the group’s core income was supported by the prevailing interest rate environment and the rise in the group’s earning assets (+69.4% YTD to NGN29.34 trillion). We revised our estimates, which led to an increase in our year-end target price by 13.7% to NGN31.38/s. Accordingly, we retain our “BUY” rating on the stock. The upward review of our target price is driven by our expectation of sustained growth from the funded and non-funded income lines. On our analysis, we estimate a final DPS of NGN2.00 in 2024E, which translates to a dividend yield of 8.1%. Our model suggests the stock is currently trading at a 2024E P/E and P/B estimates of 1.7x and 0.3x, respectively.
Funded and Non-Funded Income to Drive Profitability: For 2024E, we model a 74.0% y/y growth in gross earnings (2023FY: 87.0% y/y) driven by higher interest (+92.7% y/y) and non-interest (+41.0% y/y) income. We believe the non-core income line will be driven by the group’s non-banking (lending, payment, insurance, and pension) verticals and fair value gains. Specifically, we model a +115.8% y/y growth in the net fees and commission income line. Also, the elevated interest rate environment is expected to translate into higher funding costs (+118.0% y/y) for the group. Further down, the harsh economic climate is expected to spur higher impairment charges (+30.0% y/y) in the period under review. We also expect operating expenses (+95.8% y/y) to outpace operating income growth (+50.1% y/y) due to the sticky inflationary pressures, resulting in a 2024E cost-to-income print of 63.8% (2023FY: 45.0%). Nonetheless, we expect PBT (+6.4% y/y) to remain strong, with our model pointing to a +6.4% y/y growth in EPS to NGN18.33 in 2024E.
Resilient Asset Quality: We like that the HoldCo’s non-performing loan (NPL) ratio has remained steady (2023FY: 2.8% | H1-24: 2.7% | sector: 4.5%) despite higher risk-weighted assets caused by the depreciation of the naira and the challenging macroeconomic landscape. This is also impressive, considering the group’s loans and advances to customers have grown by 47.6% YTD to NGN11.86 trillion. We believe this owes to the group’s disciplined approach to risk management and proactive credit monitoring. Also, the group’s capital adequacy ratio remained strong, with a CAR of 19.7% as of H1-24, indicating stability. Overall, we value the group’s balanced approach, prioritizing both asset base expansion and quality improvement.
Valuation: Our year end target price is NGN31.38/s, derived from a blend of the Dividend Discount Model (60.0%), Gordon Growth Model (30.0%), relative P/E (5.0%) and relative P/B (5.0%) valuation methods. Assuming a 34.5% CoE and a forecasted dividend payout ratio of 13.4%, our DDM FV amounted to NGN28.61/s. For GGM, we maintained CoE at 34.5% and utilised an average RoE of 15.5%, deriving a FV of NGN36.47/s. On relative P/E, we utilised the tier-1 average P/E of 1.4x and applied it to our 2024E EPS estimate of NGN18.33/s to derive a FV of NGN25.20/s. Lastly, for relative P/B, we estimated forward book value per share of NGN99.84/s – tier 1 peer average P/B of 0.4x – and derived a fair value estimate of NGN40.19s.
