Access recorded consolidated Q2 19 net attributable profit of NGN22bn incorporating Diamond. This represented an increase of 25% yoy (versus Access standalone in Q2 18; up by 15% yoy *like-for-like), and was moderately below our NGN25bn forecast. Unchanged interim DPS of NGN0.25 was declared as expected, implying a yield of c3.9%.
Good results overall. Maintain Buy rating, with unchanged TP of NGN10.00 and 63% ETR. At 0.5x FY 19f PB, we think the bank’s valuation is attractive (after its merger with Diamond), given the 47% discount to frontier peers. However, we continue to prefer names such as Zenith and GTB – those two banks should be able to maintain their top-range revenue generation and operating efficiency. In addition, like Access, they are growing their retail businesses; however, they are doing so organically.
Impressive core revenues and lower-than-expected operating expense. Core revenues more than doubled yoy (up 40% yoy like-for-like), driven by stronger margins and higher net fee and commission income. Other key positives were the flat yoy operating expense on a like-for-like basis, which was 9% below our forecast, and minimal cost of risk pressure. This was due to the impact of loan impairment write backs (less than 0.1% cost of risk versus our 0.9% expectation), which offset an increase in charges on other financial assets.
On the downside, there was a significant net loss on investment securities and FX revaluation (41% of total revenues on aggregate), which outweighed gains booked in Q1. This was, however, offset by strong core revenue growth, leaving total income flattish yoy (like-for-like). Also, the effective tax rate of 25% was 8.0ppts above our expectation, and far above the c6% rate for Q2 18.
Positive asset quality and capital ratio trends, but deposits mix was weaker. Access reported an NPL ratio of 6.4%, which was 3.6ppts lower qoq, based on which we estimate that NPL provisions coverage rose above 100%, from c85% at end-Q1. The NPL ratio moderation was due to a lower NPL balance, as gross loans were flattish qoq. The capital adequacy ratio for the group and the Nigeria bank also improved to 20.9% (up 1.9ppts qoq) and 16.6% (up 0.3ppts qoq) respectively, after a full IFRS 9 adjustment.
Deposits were up 7% qoq, largely driven by increases in term deposits (by 13%) and current deposits (to a lesser degree; up 4% qoq), while savings deposits were flat. This shift in the deposit mix could present funding cost pressure in future quarters. Current and savings account deposits had a 55% contribution, which was 2ppts lower qoq and below other Tier 1 banks, with a 78-88% range. Gross loans/deposits stood at 68% for the Nigeria bank entity, above the central bank’s 60% benchmark and that of all other Tier 1 banks.
| NGNmn | Access post-merger Q2 19 | Access standalone Q2 18 | change | Access + Diamond Q2 18 | change |
|---|---|---|---|---|---|
Net interest income (NII) | 98,308 | 40,643 | 142% | 63,724 | 54% |
Net fee and comm income | 24,461 | 16,143 | 52% | 24,019 | 2% |
Core revenues | 122,769 | 56,786 | 116% | 87,743 | 40% |
Non-core income/(loss) | -24,097 | 9,974 | -342% | 13,055 | -285% |
Total income | 98,672 | 66,760 | 48% | 100,798 | -2% |
Total operating expense | 68,152 | 45,978 | 48% | 68,163 | 0% |
Pre-provision profit | 30,519 | 20,783 | 47% | 32,635 | -6% |
Pre-tax profit | 29,015 | 18,404 | 58% | 20,071 | 45% |
Net attributable profit | 21,667 | 17,380 | 25% | 18,779 | 15% |
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Net loans | 2,650,322 | 1,905,022 | 39% | **2,600,151 | 2% |
Total assets | 6,488,604 | 4,371,408 | 48% | **6,427,324 | 1% |
Total deposits | 4,182,991 | 2,408,983 | 74% | **3,920,301 | 7% |
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NII/assets | 6.06% | 3.72% |
| 4.28% |
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Cost/ income | 69% | 69% |
| 68% |
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ROA | 1.34% | 1.59% |
| 1.26% |
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NPL ratio | 6.4% | 4.7% |
| 10.0% |
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* Like-for-like = Access + Diamond aggregate in Q2 18.
** As at Q1 19 and post-merger.