Earnings Report /
Nigeria

Access Bank: Q2 review: Core revenues and asset quality ratios improve post-merger; reiterate Buy

    Olabisi Ayodeji
    Olabisi Ayodeji

    Equity Research Analyst, Banks (Africa)

    Tellimer Research
    6 September 2019
    Published by

    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.

    Table: Summary financials
    NGNmnAccess post-merger  Q2 19Access standalone Q2 18changeAccess + Diamond Q2 18change

    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%

     

     

     

     

     

     

    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%

     

     

     

     

     

     

    NII/assets

    6.06%

    3.72%

     

    4.28%

     

    Cost/ income

    69%

    69%

     

    68%

     

    ROA

    1.34%

    1.59%

     

    1.26%

     

    NPL ratio

    6.4%

    4.7%

     

    10.0%

     

    Source: Company accounts, Tellimer Research. 

    * Like-for-like = Access + Diamond aggregate in Q2 18.

    ** As at Q1 19 and post-merger.