FREE

ACCESS BANK PLC H1'17 Earnings - FX trading income masks OPEX pressure, PAT up 17% y/y

FX trading income masks OPEX pressure, PAT up 17% y/y

ACCESS released its H1’17 result reporting a strong 42% y/y growth in Gross Earnings (₦247 billion) – 12% ahead of our ₦220 billion estimate. In line with the trend observed in Q1’17, the impressive top line performance was supported by strong growth in both Interest and Non-Interest Income lines, up 43% y/y and 47% y/y respectively, with both beating Q1’17 run rates. Notably, we highlight that whilst e-business income moderated significantly to ₦2.7 billion (H1’16: ₦18.8 billion), FX trading income rose to ₦59.0 billion vs. the loss of ₦11.1 billion recorded in H1’16. Net Interest Income rose 21% y/y with NIM up 40bps to 6.7%. With NPL ratio contained at 2.5% and cost of risk at 1.0%, loan loss provision was flat y/y at ₦10.4 billion (Vetiva: ₦10.9 billion). The key pressure point was however from Operating Expense – racing 38% y/y to ₦105.1 billion (Vetiva: ₦91.2 billion) following a 34% q/q rise. However, with an effective tax rate of 24% vs. our estimate of 22%, PAT marginally missed our estimate, albeit up 17% y/y to ₦39.5 billion.

We revise our model to reflect the mild deviations across a few line items. Particularly, we cut our loan growth forecast to flat for FY’17 (Previous: 5%) as the bank continues to take a conservative stance. Also, we cut our deposit growth forecast to a 3% y/y decline (Previous: 5% growth) to reflect the H1’17 trend. Whilst we raise our Interest and Non-Interest forecast for the strong interest rate environment and the extraordinary FX gains respectively, we also revise our Interest Expense and Operating Expense in line with H1’17 run rates. However, we maintain our loan loss expense estimate at ₦20.9 billion – translating to a CoR of 1.2%. Overall, our Target Price is little changed at ₦9.66 (Previous: ₦9.60). ACCESS trades at FY’17 P/E and P/B ratios of 3.6x and 0.6x respectively.