EUR 56.22 For Business Accounts Only

ACCESS BANK PLC 9M'16 - Strong Interest Income supports earnings

• ACCESS continues to report impressive earnings as Gross Earnings rose 5% y/y – 7% and 14% ahead of Vetiva and Consensus estimate respectively. We highlight that whilst top line growth has been largely supported by strong Non-Interest Income performances in recent past, the trend reversed in Q3’16 as Interest Income rose 21% q/q amidst a 16% q/q decline in Non-Interest Income to lift Gross Earnings by 7% q/q. However, pressured by a substantial 35% q/q rise in Interest Expense (amidst a relatively higher interest rate environment and larger liability base - customer deposits up 7% q/q), Net Interest Income was constrained to a 12% q/q rise – 6% ahead of our estimate for the quarter. Furthermore, with loan loss expense coming in at a modest ₦2.1 billion in Q3’16 vs. our ₦8.2 billion forecast, the expense line was restricted to a mild 7% y/y rise (significantly lower than the spikes observed within the banking space) – translating to an annualized CoR of 0.9% vs. Vetiva FY’16 forecast of 1.6%.
• We highlight that ACCESS’ result came in largely in line with our estimates and industry trend (save for a few deviations). Consequently, we maintain our forecast across a few line items. We raise our loan growth and Interest Income forecast marginally to reflect the rise in Q3. We also raise our Interest Expense in line with q/q uptick recorded in Q3. Although we note that ACCESS has a relatively weaker NIM compared to our coverage average (6.5% vs. 7.1%), we highlight the modest improvement in margins – supported by reduced CoF amidst constrained YoA. Furthermore, whilst we note that loan loss expense remains subdued, we remain cautious and make provision for significantly higher loan loss charges in Q4’16 – in line with industry trend. Overall, with an NPL ratio of 2.1%, Capital Adequacy Ratio of 19.0%, and Liquidity Ratio of 39.0%, we are positive about ACCESS’ asset quality and capital ratios. Our TP is little changed at ₦9.45 (Previous: ₦9.49). ACCESS trades at FY’16 P/B and P/E ratios of 2.2x and 0.4x vs. tier 1 averages of 3.3x and 0.6x respectively.