April 26 (Lagos) -
ACCESS released its Q1’18 results, posting better than expected performances across major line items supported by impressive top line growth. Gross Earnings rose 19% y/y to N 137 billion, beating our N 122 billion estimate and up a significant 46% q/q.
The strong top line growth was spurred by double digit growth in Interest and Non-Interest Income – up 20% and 15% y/y, 13% and 10% ahead of our estimates respectively. We highlight the huge y/y rise in Interest Income on loans and advances (N 74 billion vs. N 58 billion in Q1’17) despite a relatively flat loan book and weaker interest rate environment.
Also, credit related fees and commission (N6.0 billion vs. Q1’17: N3.8 billion) as well as gains from derivative instruments (N26.7 billion vs. Q1’17: N6.2 billion) were the major drivers of Non-Interest Income as the income line doubled on a q/q basis. Similarly, Interest Expense rose significantly to N50.9 billion (up 39% y/y and 59% q/q respectively) ahead of our N39.8 billion estimate.
Consequently, Net Interest Margin moderated 90bps y/y to 5.8%. Furthermore,
ACCESS reported a loan loss provision of N 5.0 billion – up 55% y/y. Although the expense line came in much lower than our N 7.9 billion expectation, we note that the provisioning appears much higher than the trend we have seen from other banks in Q1’17 following the implementation of IFRS 9.
With this, Operating Income rose 7% y/y to N 81.5 billion – 9% better than our N 74.6 billion estimate. However, with Operating Expense up 21% y/y to N 54.1 billion vs. analyst estimate of N 52.9 billion, PAT was down 15% y/y to N 22.1 billion – albeit beating our N 17.0 billion estimate for the period.
Estimates revised, TP cut to N 12.80 (Previous: N 12.87)
Analysts at Vetiva Capital Management Ltd in Victoria Island have revised their estimates based on the better than expected Q1’18 performance. Particularly, they maintain 10% loan growth forecast for FY’18. Also, given the stronger than expected yield on assets in Q1’18, they raise estimate marginally by 40bps and revise Interest Income estimate to N 371 billion (Previous: N 337 billion).
Similarly, they raise Non-Interest Income estimate higher to N 167 billion as expect improving macro environment and transactions to drive the income line. Overall, Gross Earnings forecast is raised to N 538 billion (Previous: N 489 billion) tracking Q1’18 run rate.
Also, they raise Interest Expense forecast to N 197 billion, driven by our 13% Customer Deposit growth forecast. With a N 78 billion haircut already taken (as a charge to equity) following the implementation of IFRS 9 and in line with the better than expected provision recorded in Q1’18, we cut our loan loss provision estimate to N 21.6 billion (Previous: N 31.7 billion) for FY’18 – translating to a Cost of Risk of 1.0%. We raise our Operating Expense forecast to N 212 billion (Previous: N203 billion).
With top line growth expected to outpace rising cost, analyst estimates Cost to Income ratio of 62%. Overall, our PAT estimate comes in at N 83.9 billion – translating to an RoE of 17% vs. management’s guidance of 20%.
ACCESS trades at FY’18 P/E and P/B ratios of 3.9 and 0.7x vs. Tier I averages of 4.7x and 1.0x respectively.
reporting for easykobo.com on Thursday, April 26 2018 from Lagos, Nigeria
Source - analysts at Vetiva Capital Management Ltd in Victoria Island, Lagos