Moving to Neutral
- Increase to our price target largely priced in: Access Bank’s (Access) Q2 2017 results were mixed but PAT was only 4% ahead of our forecast. As such, we have increased our 2017-18E EPS forecasts by c.5% on the back of an average increase of 19% to our non-interest income estimates. Management remains optimistic for H2 as far as non-interest income is concerned, citing the market’s growing acceptance of hedging products and increased fx liquidity. We prefer to remain conservative with a quarterly run-rate of around N36bn for the balance of the year – well below the N48bn that the company delivered on this line in Q2 2017. The increase to our non-interest income forecasts is largely offset by higher opex forecasts (reflecting the surprise in Q2); other P&L items see limited changes, including loan loss provisions for which reassuring comments by management on potentially problematic loans (9mobile etc) were adequate in our view. Having rolled over to 2018, our new price target of N9.9 (10% higher) offers a modest 3% upside potential because of a strong ytd performance: +63.7% vs the ASI’s +32.6%. As such, we are lowering our recommendation to Neutral from Outperform.
- Q2 earnings down y/y due to spike in opex: Access Bank’s Q2 2017 PBT declined marginally by -3% y/y to N20.8bn. Although pre-provision profits increased by 25% y/y driven by growth from both revenue lines, the non-interest income line which grew by 30% y/y was the stronger of the two lines. However, funding income also grew healthily by 19% y/y. Despite the double-digit growth in pre-provision profits and an 8% y/y decline in loan loss provisions, a 45% y/y spike in opex proved significant and completely offset the positives from the these lines. Further down the P&L, PAT fell by a much wider margin of-57% y/y, largely because of negative base effects in other comprehensive income (OCI) which came in at N7.7bn compared with around N30.7bn in Q2 2016. Sequentially, PBT was down by -33% q/q, mainly driven by spikes in opex and provision which were up by 34% q/q and 124% q/q respectively. Funding income was also around 6% lower q/q. Compared with our forecasts, PBT missed by around 12%, mainly because of the negative surprise in opex. However, PAT beat by 4% because the bank had a positive result of N7.7bn on the OCI line (we had forecast zero OCI).