Buy, Sell or Hold? Analysis of Access Bank 2014 FY results

Access Bank Plc. (12 months ended December 2014)

Access Bank Plc (Access) reported 19% YoY growth in gross earnings to N245.2 billion for the 12 months to December 2014 (9M: +17% YoY). Growth in profit lines however decelerated as PBT rose 16% YoY to N52 billion (9M: +20% YoY) while PAT rose 15% YoY to N43.1 billion (9M: +29% YoY).
Access announced a dividend of N0.35 per share which brings FY 14 dividend to N0.60 (matching 2013), representing a payout ratio of 32% and translating to a dividend yield of 9.8% at current price.

Slight dip in asset yields drive marginal top-line miss

In line with trends so far this earnings season, non-interest revenue provided a big boost to Access as it rose 19% QoQ to N18.6 billion in Q4 14 to match our estimate. Whilst details are unavailable we believe that similar to other banks, forex earnings played a critical role in the improvement. Interest income, on the other hand, shrank 6% QoQ to N45.2 billion and was 5% behind our estimates. A 20bps QoQ dip in asset yields to 2.4% in Q4 was primarily responsible as earnings assets expanded marginally driven by 5% QoQ loan growth, though the latter was a slowdown from prior quarterly growth rates. On a FY basis, asset yield of 9.2% was 10bps short of our estimates with this pricing pressure ultimately responsible for mildly weaker top-line as Q4 14 gross earnings of N63.8 billion fell 3% short of our forecasts but stayed in line QoQ.
A mild 2% QoQ contraction in Access’ deposit base was mostly offset by 25% QoQ expansion in borrowings, the latter likely forex rate influenced. The trade-off kept funding base flat with associated interest expense of N21.1 billion flat from Q3 14 and 2% ahead of our estimates. On slightly lower funding base QoQ, annualized WACF widened 10bps from 9M 14 to 4.3%, in line with expectations.

Expected cost pressures widen impact on profits

Much of the additional cost pressures we envisaged in Q4 materialised with our view hinged on greater regulatory cost accruals for the industry at large. However, drivers were slightly different as the 14% QoQ climb in opex to N27.7 billion (Q4 14E: N27.2 billion) was largely driven by a 10% QoQ rise in personnel expenses and 15% QoQ rise in depreciation and amortization whilst ‘other opex’ was flat. The opex rise on flat QoQ revenue drove a 100bps expansion in CIR from 9M 14 to 62.2% by FY 14.
Impairment charges also jumped 36% QoQ to N4.7 billion but were 26% short of our estimates after we had made upward revisions post 9M 14 conference call to adjust for the rapid loan creation up to that point. FY 14 cost of risk of 1% compares favourably with our 1.2% estimate.
Largely reflecting opex and impairment cost pressures, on flat top-line, Q4 14 PBT declined 34% QoQ to N9.9 billion (9M 14 avg: N14.1 billion) while PAT contracted 43% QoQ to N7.2 billion (9M 14 avg: N11.9 billion). Relative to our estimates, Q4 14 PBT and PAT were respectively 16% and 18% short largely reflecting revenue miss and slightly higher interest and opex expenses. FY 14 PBT and PAT margins of 21% and 18% were each 200bps lower from 9M levels and respectively 100bps and 200bps behind FY 13 levels.

Projections may moderate FVE but deep value persists

The WACF increment in each quarter since Q2 14 continues to undercut expectations for Access bank’s funding synergy improvements which we still consider a critical value driver. The picture is further hampered by the faltering of the erstwhile positive—revenue growth. Nonetheless, this perhaps only points to the loftiness of our expectations post-merger and the solid YoY growth number continue to showcase underlying improvements. Whilst we are likely to scale back our projections, any downside to our fair value estimates would appear to have been more than compensated for by significant price declines along with the broader market and we envisage little change to our BUY rating. Indeed, successful completion of its rights issue could allow for further top-line growth, having likely been hampered by the CAR ceiling in Q4 14, going by the slowdown in loan growth. In addition, valuations remain very attractive with P/E of 3.2x and P/B of 0.5x comparing favourably to history and latest peer data.

Source: ARM