Stock Analysis: Access Bank: FX Trading Income Masks OPEX Pressure

By Vetiva Research

Access Bank released its H1’17 result reporting a strong 42 percent y/y growth in Gross Earnings (N247 billion) – 12 percent ahead of our N220 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 percent y/y and 47 percent y/y respectively, with both beating Q1’17 run rates.

Notably, we highlight that whilst e-business income moderated significantly to N2.7 billion (H1’16: N18.8 billion), FX trading income rose to N59.0 billion vs. the loss of N11.1 billion recorded in H1’16.

Similarly, Interest Expense rose markedly (a trend consistent across all other banks that have released so far), up 80 percent y/y and 21 percent ahead of our estimate.

Nevertheless, Net Interest Income rose 21% y/y with NIM up 40bps to 6.7 percent. With NPL ratio contained at 2.5 percent and cost of risk at 1.0 percent, loan loss provision was flat y/y at N10.4 billion (Vetiva: N10.9 billion).

The key pressure point was however from Operating Expense – racing 38 percent y/y to N105.1 billion (Vetiva: N91.2 billion) following a 34 percent q/q rise.

We highlight that the biggest rise came from Admin Expense which almost doubled over the period.

Despite this, PBT rose 18 percent y/y to N52.0 billion – just in line with our estimate.

However, with an effective tax rate of 24 percent vs. our estimate of 22 percent, PAT marginally missed our estimate, albeit up 17 percent y/y to N39.5 billion.

Estimates revised, TP revised higher to N9.66 (Previous: N9.60) 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 percent) as the bank continues to take a conservative stance.

Also, we cut our deposit growth forecast to a 3 percent y/y decline (Previous: 5 percent 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 N20.9 billion – translating to a CoR of 1.2 percent.

Overall, our Target Price is little changed at N9.66 (Previous: N9.60). Access Bank trades at FY’17 P/E and P/B ratios of 3.6x and 0.6x respectively.