Access Bank reported Q1 net profit of NGN 40.9mn – down 1% yoy from NGN41.1mn on account of higher operating expenses (up 64% yoy). Net interest income was up 27% yoy, attributable to increased loan volumes and a moderation in funding cost.
We reiterate our Buy recommendation with an unchanged TP of NGN9.50 and 56% ETR. At 0.4x FY 20f PB – a 50% discount to frontier peers – we think Access Bank is attractive. However, our top picks remain Zenith and GTB, due to their impressive top-line revenue growth and operating efficiency, and their growing retail businesses.
- Net interest income was up 27% yoy, which is attributable to a 12% increase in loans and a 0.5ppts decrease in gross funding cost. However, net interest margin remained relatively unchanged at 4.01% (versus 4.0% in Q1 19 and 3.91% in Q4 19), owing to lower yield on interest-earning assets.
- Net fee income was up 76% yoy, as Access increases its digital footprint and also enjoys synergies from its Diamond merger.
- Impairment charge came in lower on account of recoveries on loans and other financial asset, which resulted in an improvement in the cost of risk (down 1.5ppts yoy).
- Operating expenses were up 64% yoy, owing to a 54% increase in salaries and a 70% increase in other operating expenses, which in our view is a one-off spike reflecting the higher cost of service following the merger with Diamond Bank (which was concluded in March 2019). This translated into a 16.5ppt increase in the cost/income ratio to 69.8% (from 53.3%).
- On a qoq basis, loan growth was relatively flat, inching up 0.2ppts (below that of most peers), which may reflect cautious lending policies in the context of the coronavirus uncertainty.
Access Q1 20 results summary
|NGNmn||Q1 20||Q1 19||yoy|
|Net interest income||72,212||56,838||27%|
|Net fee income||22,998||13,069||76%|
|Total operating income||129,478||103,490||25%|
|Net impairment charge||-8,595||3,007||-386%|
|Net attributable profit||40,409||40,627||-1%|
|Net interest margin||4.01%||4.00%|
|Cost of credit risk||-1.11%||0.42%|