15 March 2019 : Access Bank Plc (Access) full-year 2018 earnings released this morning showed EPS expansion of 53.2% YoY to N3.28 following material decline in loan-loss provision (-57% YoY to N14.7 billion) and increase in net interest income (+6.2% YoY to N173.6 billion). On the latter, analysts reckon that despite 19.1% YoY growth in interest income (with assets yield expanding 4bps YoY to 12.5%), the single-digit growth in net interest income was due to a faster increase in interest expense by 32% YoY (with related cost of fund expanding 46bps YoY) which pressured moderation in Net Interest Margin (NIMs) to 5.7% (-47bps YoY).
On asset quality, Access recorded 230bps YoY contraction in Non-Performing Loans (NPL) ratio to 2.5% (compared to GTB and Zenith of 7.3%and5%respectively).Accordingly, the impact reflected in the lower provisioning during the year, with cost of risk contracting 100bps YoY to 0.7%. Elsewhere, analysts reckon that the bank Non-Interest Revenue (NIR) remained resilient during the year declining by 0.7% YoY (relative to analyst's estimate 15% YoY decline) to N138.2 billion due to strong performance in net trading income over Q4 18, which more than outweighed declines in fee income (-49% YoY) and foreign exchange loss of N39.5 billion on the Other Income line. The bank declared a final dividend of N0.25 which in addition to interim of N 0.25 brings total payout to N0.50. The final dividend translates to a dividend yield of 4.2% on current pricing.
Impressive performance across income lines in Q4 18. Access Q4 standalone numbers was impressive with sturdy performance across income lines resulting in 38% QoQ growth in EPS to N1.11. The strong performance stemmed from double-digit growth in net interest income by 34% and NIR growth of 10% QoQ, both of which more than outweighed the surprise additional N6.3 billion loan loss provision during the period and higher operating expense (+6% QoQ). On NIM, the gains stemmed largely from growth in interest income of 21% QoQ following recovery in interest on investment securities (+94% QoQ) and strong outing on interest on cash and interbank lending (+255% QoQ) both of which offset decline on interest on loans (-11.3% QoQ) to support 226bps QoQ expansion in assets yield. On the other hand, funding cost over the quarter expanded +18bps QoQ to 5.3% with interest expense rising 11.2% QoQ. Accordingly, the stronger expansion in assets yield necessitated expansion in NIM by 252bps QoQ to 6.9%. For Interest expense, the QoQ increase emanated from growth in interest on interbank placements (+76% QoQ to N16.5 billion) and customers deposit (+2% QoQ to N30.4 billion).
FX trading income and derivative gains pulled the magic. Over the fourth quarter of 2018, NIR expanded 10.4% QoQ to N37.8 billion stemming largely from higher FX trading gains of N24.3 billion (+45% QoQ) and gains on derivative instruments of N15.2 billion (compared to a loss of N12.7 billion in the prior quarter). However, analysts note that net fee income (-29% QoQ) declined – due to higher fee expense of N9.3 billion over the quarter – and the bank recorded loss on the Other Income line of N17.3 billion emanating revaluation loss of N18 billion (compared to GTB and Zenith of N5.4 billion and N5.1 billion revaluation gains respectively).
Higher provisioning compound earnings pressure. As stated above, the bank recorded a materially lower loan loss provision over 2018, with cost of risk contracting 100bps YoY to 0.7%. However, analysts witnessed a slightly higher provisioning over Q4 18, with the bank booking additional provision of N6.3 billion (more than 5x of the level provided in Q3 18 of N1.0 billion) with related cost of risk expanding 100bps YoY to 1.2%, a development analysts will be seeking clarity from management.
The impact of the higher net interest income and strong NIR outweighed the higher loan loss provision to drive expansion in Q4 18 EPS by 38% QoQ to N1.11 from N0.80 in Q3 18 with ROE expanding to 36.7%from23.1% in Q3 18. Overall, Access’ full year ROAE rose to a three year high of 18.9%(+610bps YoY, compared to GTB and Zenith FY 18 expansion of 59bps and 85bps YoY) on account of stronger net profit margin.
The stock currently trades at a current P/B of 0.34x which is at a discount to peers of 0.76x. Analyst's last communicated FVE on ACCESS is N11.80, however, analysts have a HOLD rating on the stock. Analysts will revisit analyst's numbers after further analysis and discussion with management.
Reporting for EasyKobo on Friday , 15 March 2019 in Lagos, Nigeria
Source: Oluwasegun Akinwale from ARM Securities Limited
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