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ACCESS BANK NIGERIA PLC FY'17 - Earnings drag on weak Q4 and higher provisioning

Earnings drag on weak Q4 and higher provisioning                                                   

ACCESS released its FY’17 result, posting weaker than expected performances across major line items. Although Gross Earnings rose 20% y/y to ₦459 billion, the top line came in 5% lower than our estimate of ₦486 billion, following a less convincing Q4 where revenue declined 21% q/q. The top line underperformance was driven by both Interest and Non-Interest Income – down 12% and 41% q/q respectively. More positively however, amidst an impressive 17% q/q rise in Customer Deposits for Q4’17, we highlight the 30% q/q moderation in Interest Expense to ₦32 billion, leading to a lower than expected Interest Expense of ₦156 billion vs. our ₦174 billion estimate. Operating Expense rose 17% y/y to ₦188 billion (Vetiva: ₦207 billion) leading to an 11% y/y moderation in PBT to ₦80 billion (Vetiva: ₦88 billion). Furthermore, with an effective tax rate of 23% vs. Vetiva’s estimate of 18% and prior year’s 21%, PAT declined 13% y/y to ₦62 billion – falling short of our ₦71 billion estimate. On an EPS of ₦2.14, Board of Directors proposed a final of ₦0.40 (total of ₦0.65) – translating to a dividend payout ratio of 30%.                                       

Following the bank’s conference call, we highlight that management are quite optimistic about 2018 as they expect the improvement in the macro space to support growth. Particularly, the bank guided a 10% loan growth for the year – an estimate we have chosen to adopt for our forecast. We anticipate a 300bps moderation in cost of funds and expect this to keep Interest Expense growth contained at 2% y/y despite our strong single digit deposit growth. However, we remain cautious with our NPL formation and forecast a loan loss provision of ₦32 billion for FY’18 – translating to a cost of risk of 1.5%. Overall, our PAT estimate comes in at ₦74.2 billion – translating to an RoE of 14% vs. management’s guidance of 20%.