Access Bank Plc. (6 months ended June 2014)
- Access Bank Plc (Access) reported 13% YoY growth in gross earnings to N117.6billion for the 6 months to June 2014. PBT of N27.1billion was 4% higher YoY while PAT of N23.1billion was 11% higher YoY.
- Access also declared an interim dividend of N0.25 which translates into a 25% payout ratio and 2.6% dividend yield as at last close.
Higher volumes drive top-line gains
- Though revenue of N60.4billion was 4% behind our estimates it was 5% higher QoQ reflecting strong improvements in interest income which at N46.9billion was 28% higher QoQ and 4% ahead of our estimates. A 50bps jump in asset yields to 9% combined with 7% rise in total earning assets to drive interest income with cash, loans and securities respectively rising 9%, 6% and 2% QoQ. Strong volume growth, already exceeding FY targets, also accounts for the outperformance of revenues to our estimates as asset yields remain 20bps short of FY 14 estimates. In our view, the balance sheet changes continue to reflect deployment of Access’ improved liquidity after monetizing illiquid bonds. Conversely, non-interest revenue (NIR) contracted much sharper than expected falling 35% QoQ to N13.4billion, 25% short of our estimates. Whilst we had expected a moderation on the back of the outlier nature (relative to peers) of the 26% QoQ jump in Q1 14, the depth of current weakness is concerning and likely reflects pressure across all sub-components of NIR.
- Interest expense matched the jump in interest income rising 29% QoQ to N19.6billion, in line with our estimates. As we anticipated, higher funding volumes played a role with funding base expanding 8% QoQ to N1.7trillion on the back of 3% jump in deposits and 50% rise in borrowings. However, we believe issuance costs on the latter also contributed to interest expense jump with Access concluding its $400million, 9.25%, 7-year (callable at 5) Eurobond in Q2 14. Accordingly, annualized WACF rose 20bps QoQ to 4%.
Cost bag remains mixed as opex improvement returns profits on track
- After driving much of the Q1 cost increments, opex moderated 7% QoQ to N25.3billion and was 5% lower than our estimates which factored in a more moderate step-down in anticipation of slower regulatory cost accrual. In line with this train of thought, whilst staff costs rose 6% QoQ to N7.9billion, other opex shed 14% QoQ to N15.2billion even as depreciation & amortization maintained its N2.1billion quarterly run-rate. In all CIR improved a further 120bps (Q1 14: -800bps) to 63.4% aided by revenue improvements.
- In contrast, impairment charges which fell 40% QoQ in Q1, rebounded 32% QoQ in Q2 14 to N2billion which, regardless, is 25% short of our estimates. We believe the charges relate to delinquencies from the renewed loan creation drive and, in light of 35% YoY increment in loan book, appear moderate overall. Nonetheless, annualized cost of risk is 50bps higher QoQ at 0.7%.
- Whilst weaker NIR already put operating income 3% behind QoQ, lower opex helped compensate with PBT of N13.7billion 2% higher QoQ but matching our estimates. However, with tax charge doubling QoQ to N2.7billion and 17% ahead of our estimates, PAT of N11billion fell 10% short QoQ and 4% behind our expectations. Corresponding PBT margin of 23% is flat from Q1 but 600bps lower YoY while PAT margin of 18% is 300bps lower both QoQ and YoY.
FV gains likely mild but BUY rating preserved
- Deepening funding synergies remain a critical dynamic for Access with reduced funding pressure also having the knock-on benefit of making it a more attractive destination for interbank and customer funds. However, whilst we expect the new era on revenues to persist, we envisage a slow-down in QoQ improvements in H2 even as cost profile is unlikely to improve dramatically. Overall, we expect mild improvement in profits with Access’ valuation of 5.6x current PE and 0.9x P/B, which compare favourably with peers’ respective 6x and 1.1x, adding to our positive view. Based on significant upside potential relative to our last FV estimate, which is now likely to increase marginally, we maintain our STRONG BUY rating on Access.
Note: This is an initial review and was culled from ARM Research Newsletter