April 23, 2019/FBNQuest Research
10% avg. increase to our 2019-20E EPS forecasts
Access Bank’s (Access) Q1 2019 results beat ours and consensus forecasts on every criterion. In particular, funding income was exceptionally strong, with a growth of 27% y/y and a positive variance of 23% relative to our forecast. The stellar growth in funding income was driven by a 159% y/y increase in income from investment securities on the back of a 54% volume growth on the investment securities line during the quarter.
In contrast to the growth trends on the P&L, there was visible deterioration in balance sheet metrics because unlike the P&L which showed only Access Bank’s numbers, the balance sheet numbers reflected consolidated numbers for the post-merger entity (including Diamond). On its Q1 2019 earnings call, management disclosed that total NPLs and impairments taken by Diamond were c.N269bn and N219bn respectively as at December 2018. Further write-offs of N61bn, loan recoveries of N4.5bn and loan repayments of N63bn in Q1 2019 resulted in a reduction of impairments and NPLs to c.N156bn and over N200bn for Diamond.
As such, NPL and coverage ratios for the combined entity deteriorated to 10.0% and 88.2% (compared with 2.5% and 160% respectively for Access as at Q4 2018). Following the results, we have increased our 2019-20E EPS forecasts by an average of 10% and our price target by c.8% to N14.7. The upgrades to our forecasts translate to 2019E PBT and PAT of N140bn and N117bn respectively and an implied ROAE of c.19.6%, just shy of management’s 20% guidance. Our new price target implies a potential upside of c.114% from current levels. As such, we retain our Outperform rating on the shares.
Q1 PBT up 64% y/y, driven by pre-provision profits & impairments
Access Bank’s Q1 results showed strong growth across the P&L. PBT grew by 64% y/y to N45.1bn. Although a -32% y/y decrease in loan loss provisions contributed to the strong earnings growth, pre-provision profits which was up by 22% y/y was the major driver.
From a revenue perspective, funding income was the main driver, with a growth of 27% y/y. However, non-interest income also grew strongly by 17% y/y. Below the tax line, PAT grew by 192% y/y, thanks to a positive result of N5.9bn in other comprehensive income. (OCI). Sequentially, PBT and PAT grew by 37% q/q and 95% q/q respectively.
Similar to the y/y trends, double digit q/q growth in pre-provision profits, a significant reduction in loan impairments and a positive result in OCI were the key drivers behind the strong earnings growth.