EUR 4.00 For Business Accounts Only

Initial View - Access Bank 9M 2018 - Lower effective tax saves the day

• Yesterday, Access Bank Plc (Access) released unaudited nine-months 2018 results, wherein PAT grew by 11.6% YoY to N62.9 billion with EPS of N2.17 far exceeding our FY 18 estimate of N2.16 on the back of lower than expected loan loss provisions and a significantly lower effective tax rate of 10% (9M 17: 22%, FY 18E: 20%). Consequently, ROAE printed at 18.0%, an increase of 270bps relative to 9M 17. 
• NIM Contraction. Net interest income was flat (-1% YoY) to N119.9 billion on the back of lower asset yield and funding cost pressure. Parsing through the breakdown, asset yield contracted 60bps YoY to 12.9% stemming largely from lower yields on investment securities (-160bps YoY to 12.4%). Further down, the bank’s funding cost expanded by 190bps YoY to 7.8% as interest expense rose 21.8% YoY. Particularly, the higher funding expense resulted from 1.0x growth in interbank placements, 18.5% YoY jump in interest on customers deposits and 73.8% YoY increase in borrowing cost. Consequently, net interest margin (NIM) contracted 252bps YoY to 5.1%. Notably, reported interest income (N274.5 billion) and interest expense (N151.5 billion) translate to 78% and 75% of our FY 18 forecasts.
• Derivative loss takes a toll on NIR. Non-interest revenue (NIR) declined by 15.5% YoY following loss of N9.3 billion on the Other Income line and 11.6% YoY moderation in trading income due to foreign exchange trading loss of N8.6 billion. On other income, the loss stemmed from N20 billion FX loss on derivative, which we attribute to the unwinding of its derivative position. In our thoughts, we believe both the loss of foreign exchange trading and derivative positions are reflections of the convergence of the NIFEX to the NAFEX rate, which limited revaluations gains and remeasurements of previously recorded derivative gains. Overall, the bank recorded a 7.1% YoY decline in operating income to N223.3 billion.
• Impressive Q3 Result. In line with Zenith, Access’s Q3 stand-alone earnings showed a resilient topline (+5.8% QoQ) and bottom line performance with EPS of N0.80 (+33% QoQ). The performance reflects sizable increase in NIR (+40.9% QoQ to N34.3 billion) and lower impairment charge (-57% QoQ to N1.0 billion), the duo of which more than offset the 7.4% QoQ decline in net interest margin and 5.2% QoQ increase in opex.
• Our take. Overall, while we acknowledge the strong performance during the period, we remain biased, as we believe the earnings resilience were supported by non-core operations, especially Q3 standalone. However, with current EPS exceeding our FY 18 estimate, we will be revising our estimate after engagement with management. Particularly, we expect lower impairments – with 9M figure translating to 74% of our FY 18 forecast – and resilient NIR as we see limited scope for further losses on both foreign exchange trading and derivative positions.
• Our last communicated FVE on Access Bank is N13.46 which translates to a STRONG BUY rating on the stock. We will revisit our numbers after further analysis and discussion with management.