Access Bank Plc, a tier-one lender, is one of Nigeria’s top-rated commercial banks listed on the premium board of Nigerian Stock Exchange (NSE). The bank which commenced operations in Nigeria about three decades ago got its shares listed for investors’ patronage in the financial services sector of the Exchange. It has maintained its status as a public company in the last two decades. It recorded a fair financial performance in the half-year financial period ended June 30, 2018 (HI-2018), according to analysts, is poised to outperform the expectations of shareholders and market watchers at the end of its financial year ending December 31, 2018. Bamidele Famoofo reports
In its latest result for half-year 2018, the bank’s earnings per share (EPS), grew by a marginal 0.42 per cent compared to 1.37 per cent recorded in half year ended June 30, 2017.
Interest income increased by 15.31 per cent, driven by growth in interest earned on customer loans. However, a faster growth in interest expense by 29 per cent, led to a meagre three per cent (3 per) increase in net interest income. Most non-interest income (NIR) lines – net fee and commission, net trading income and other income – grew, but offset by forex income, which dropped by 157 per cent. As a result, NIR in H1-18 was lower by 22 per cent year on year (y/y), weighing significantly on the bank’s performance. The bottom line, however, was supported by a decline in impairment charge provision (-29per cent), lower opex (-6.5per cent), and significantly low ETR of 13.6 per cent.
Yield on Assets
Access recorded impressive growth in asset yield in H1-18 (+86 bps to 12.97per cent in H1 vs. FY-17), despite the drop in interest rates on fixed income securities, which was largely accountable for the decline in interest income for some of its peers: Zenith Bank (-12.81per cent), Guaranty (-2.41per cent), and FBNH (-3.00per cent).
The growth emanated from improved yields on customer loans, which, by the estimate of stock analysts, surged 297 basis points to 14.54percent as against 11.56 per cent in financial year ended 2017, in the half-year, following forex translation impact from N350/Dollar in H1-18 to N331/Dollar in full-year 2017) on FCY loans, which constitutes 39 percent of total loan book.
Also contributing to the improvement in yield is the traction gained by the bank’s PayDay Loan product, which involves granting short-term (30-days) loans to retail customers (particularly salary earners). Total turnover on the platform has grown significantly by 2,737 per cent to N10.9 billion in H1 and currently attracts up to N3 billion worth of transactions monthly. “We think this is sustainable and is expected to contribute more significantly to yields going forward. As a result, we estimate yield on customer loans of 15per cent in 2018E”, experts with Cordros Capital said.
Analysts are confident that the bank would be able to explore the opportunities in the Central Bank of Nigeria’s new differentiated CRR guideline, which permits deposit money banks (DMBs) to take out of their excess CRR and give out as loans to the specified sectors. “Lastly, yields on fixed income instruments have resumed upward trajectory as seen in the recent bond, NTB, and OMO auctions, further supporting our projection of improvement in asset yield in the second half. As a result, we estimate 64 bps y/y increases in asset yield to 12.75per cent in 2018E. Together, with expected growth in interest-earning assets by 7.80per cent, we estimate growth in interest income by 20per cent y/y in 2018E”, Cordros Capital added.
Cost of Fund
An expensive debt mix, as well as high cost of deposits, were major drivers of the elevated cost of funds (5.49per cent) recorded in H1-18. Cost of deposits was higher by 133 bps in H1 (vs. FY-17), amidst growth in total deposits by 7.31 per cent in half year, vs. FY-17. The cost of debt securities issued by the bank was also higher by 21 bps in half year, at 12.11 percent as against full year 2017, as the bank continued to run its N100 billion commercial paper (CP) programme, of which three tranches matured in H1, and three others are due for maturity in H2 (valued at N56 billion). Also, the bank continues the servicing of its two outstanding Eurobonds, with one of the bonds callable in 2019, and the other due for maturity in 2021. However, there are efforts by management to reduce the cost of funds, by re-pricing some outstanding CPs in the second half, and this reflected in the most recent tranche issued in September, wherein its implied yield reduced to 13.79 per cent, as against 16.05 per cent in its previous issue in February. However, analysts are of the opinion that the recent rise in yields may limit how much room the bank has to reduce its cost of debt. “As a result, we expect the cost of funds (CoF) will be lower by 23 bps (vs. H1-18) in FY-18 at 5.26per cent, but still higher than our computed CoF of 4.73per cent recorded in FY-17”.
Improvements in macroeconomic fundamentals, following the rise in oil prices, has led to improved servicing of loans by debtors, particularly by in the upstream oil & gas sector. Furthermore, the recent resolution of the sale of 9 mobile assets to Teleology has increased optimism around the repayment of the telco’s outstanding loan to the consortium of banks, standing at USD1.2 billion, and of which USD200 million is to be written off by the affected banks. The proceeds from the sale (USD301 million) is to be shared among the banks on a pro-rata basis, and c. N20 billion (according to management’s rough estimate) is expected to be paid to Access Bank in a few weeks and the balance restructured over seven years. With 9mobile constituting a bulk of the bank’s NPL (59.0per cent, as at H1-18), it is expected that the resolution of the Telco’s sale will improve the bank’s asset quality significantly. “It is also worth stating that 37 per cent of the 9 mobile exposure has been provided for. Hence, we project a 86 bps y/y dip in the cost of risk to 0.91per cent in 2018E, but remain conservatively above the 0.73per cent recorded in H1”, analysts disclosed.
According to Cordros Capital research on the bank, the six per cent (6per cent) decline in opex in H1 contributed to the marginal uptick in the bottom line. However, owing to the drop in operating income –9.58 per cent year on year, while cost-to-income ratio increased to 64.9 per cent in H1 as against 62.15 per cent in FY-17.
The projection for 2018 end of the financial year was based on that the assumption that opex will inch up by two per cent (2per cent) over 2017 financial year figure. “However, with operating income expected to rise by six per cent (6per cent) y/y in 2018E, we estimate the cost-to-income ratio of 59.8per cent for the full year”.
Estimate and Valuation
Overall, Cordros Capital forecast EPS of N3.0 and N3.05 per share in 2018E and 2019E respectively. Based on its performance projection on the bank, Cordros Capital indicated: “Our target price (TP) of N13.34/share translates to 66.69per cent upside potential from today’s closing price of N8.75, with the BUY rating. On our estimates, Access trades at forward P/E and P/BV multiples of 4.4x and 0.79x, below Bloomberg’s Middle East Africa peer average multiple of 10.2x and 1.0x, respectively”.