By Meristem Research
For the first time in 3-years, Access Bank Plc recorded a decline in profit. Its 2017FY result showed that gross earnings advanced by 20.39 percent to N459.08 billion.
However, profit before tax and profit after tax declined by 11.36 percent and 13.23 percent apiece due a substantial increase in impairment charges (57 percent) aided by growth in operating cost (17.31 percent).
Consequently, the Bank’s ROE contracted to 12.8 percent from 17.4 percent in 2016.
However, the bank projects a 2018 ROE 20 percent. This is to be attained through cost minimization strategy, increased revenue from retail segment and alongside sustained income from wholesale segment of the bank.
While we note that effectiveness of these strategies in boosting the bank’s earnings, we hold a more conservative view as ROE of 20 percent requires almost a 60 percent growth in profit to result to an amount above N100 billion.
We project a growth in profit of 28.25 percent, driving the bank’s profit to N79.50k and EPS to N2.75k.
Profit growth should be helped by an 18.24 percent growth in Gross Earnings to N542.79 billion. The counter has a 1-year average PE ratio of 3.92x.
However, given the positive sentiment which has surrounded the counter this year, its PE ratio has ranged between 4.23x–5.45x.
Consequently, we expanded our target PE to 5.00x from 4.2x. Applying the target PE to our 2018FY target EPS, we attained a target price of N13.75, which represents an upside potential of 24.43 percent using the closing price of N11.05 as at March 29, 2018.
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