Access Bank Plc. (9 months ended September 2014)
- Access Bank Plc (Access) reported 17% YoY growth in gross earnings to N181.4 billion for the 9 months to September 2014, an improvement on 13% YoY growth as at H1 14. PBT of N42.2 billion is 20% higher YoY (H1: +4%) while PAT of N35.8 billion is 29% higher YoY (H1: +11%).
Loan focus sustains top-line improvement
- Gross earnings of N63.7 billion were in line with our estimates and 6% higher QoQ as Access’ improved balance sheet flexibility reflects in stronger asset creation. The major balance sheet change was a rotation out of cash (-23% QoQ) into loans (+14% QoQ) as the bank continued to deploy improved liquidity. The pickup in asset yields (+40bps QoQ) was wholly responsible for a 3% QoQ rise in interest income which at N48.1 billion was 4% ahead of our estimates. That upside was offset by non-interest revenue (NIR) which fell 13% short of our estimates but was nonetheless a 16% QoQ improvement on a particularly weak Q2 14 (-35% QoQ). In particular, while fee income recovered from a loss position in Q2 toN4.9 billion, the recovery was not as strong as we had envisaged, even after adjusting for the outlier nature of Q1 14 (N20.6 billion). Hence, much of QoQ gain in NIR came from other income which at N10.7 billion compares favourably with N14.6 billion in H1.
- Mild increment in deposits (+2% QoQ to N1.48 trillion) combined with higher interbank takings (+25% QoQ) to push funding base 3% higher to N1.77 trillion. In response, interest expense rose 7% QoQ to N20.9 billion, 4% ahead of our estimates. We believe the rise mainly reflects higher costs on interbank exposure with annualized WACF pushing up 20bps from H1 to 4.2%.
Cost containment underpins profit outperformance
- Opex moderated a further 4% QoQ (Q2: -7% QoQ) to N24.4 billion, 11% behind our estimates. However, in contrast to Q2 when ‘other opex’ was the driver, current decline came on the back of a 20% reduction in personnel expenses. Combined with revenue improvements, annualized cost-to-income ratio declined 220bps from H1 level, marking the 5th straight quarter of improvement.
- On the flip side, impairment charges remain on the ascendancy, rising 73% QoQ (Q2: +32% QoQ) to N3.45 billion, 28% ahead of our estimates. Whilst we had expected a rise in provisioning would be part and parcel of recent loan creation, further QoQ jumps of this magnitude would be of concern. Notwithstanding, annualized cost of risk is 20bps higher QoQ at 0.9% and remains moderate in our view.
- Different directional movements in opex and provisioning largely evened out QoQ and helped top-line improvements percolate to PBT which at N15 billion was 10% higher QoQ and 7% ahead of our estimates, on lower aggregate costs. Tax charges which were moderately lower QoQ and relative to our estimates widened PAT improvement on both fronts with Q3 PAT of N12.8 billion 16% higher QoQ and 10% ahead of our estimates. 9M PBT margin remained unchanged from H1 and YoY at 23% while PAT margin was 200bps higher YoY at 20% but also unchanged from H1.
Upside opens up on recent price movements
- We continue to see burgeoning economies of scale as a critical value driver for Access going forward. While this faltered somewhat on the funding synergy front in recent times with 20bps WACF increment in each of Q2 and Q3 14, we expect such pressure from interbank exposure to be temporary. Positively, the revenue side remains intact with Q3 14 marking 4th consecutive quarterly rise. On balance, while we continue to expect liquidity and scale enhancement to be more moderate going forward, improvement in cost profile is proving to be a positive surprise and reductions to opex mark the major revision to our estimates. The bank has announced a 1 for 3 rights issue which, along with recent $400 million tier II capital raise, we believe bodes well for capital level and ability to sustain asset creation drive going forward. Despite the positive connotation, in our view, the implicit dilution appears to have influenced recent price declines which only makes valuation multiples of 4.5x current PE (last report: 5.6x) and 0.8x P/Bv (last report: 0.9x) even more attractive relative to peers’ respective 6x and 1x. Based on significant upside potential relative to last FVE (N12.6), we maintain our STRONG BUY rating on Access.