Strong start to 2017
- High teen increases to our earnings forecasts: After a subdued Q4 2016 (once one-off gains are stripped out), Access Bank impressed with its Q1 2017 results, especially with both revenue lines contributing. Although loan growth remains subdued (flat in Q1 q/q) and some key fee income businesses have been weak (e-business), margin expansion and gains on fx and derivatives have more than compensated. Funding income should remain strong in the near term, supported by relatively high yields on tbills. We expect non-interest income to remain volatile going forward due to a mixed outlook for different business lines. Notwithstanding, the strong start to the year and our expectations going forward have led us to increase our earnings forecast for 2017-18E by high teens, and our price target by 12% to N9.0. Our new forecasts imply a 2017E ROAE of 15.2%. Though up from our previous estimate of 13.1%, they are still below management’s guidance of 20%, leaving the possibility of further positive surprises ahead. Year to date, the shares have gained 13.3% (ASI: -4.1%) and are among the best performing names on the market. We see a further 36% upside potential from current levels, and therefore reiterate our Outperform recommendation.
- Better-than-expected Q1 2017 across the board: Access Bank’s Q1 2017 PBT of N31bn grew 38% y/y while PAT grew much faster (+66% y/y) to N25bn, thanks to a marked reduction (-65% y/y) of the losses on the other comprehensive income line. Both revenue lines contributed to the PBT growth: funding income grew 23% y/y while non-interest income grew 48% y/y such that pre-provision profits increased by 34% y/y. Although both loan loss provisions and opex were also up by more than 30%, the magnitude of the growth in revenues proved significant. Sequentially, the changes were more glaring. PBT grew by 70% q/q while PAT was up by 108% q/q. The main driver behind the strong q/q earnings growth was a significant reduction in loan loss provisions (-67% q/q). This reduction more than offset a -10% q/q fall in non-interest income. Compared with our estimates, the results were well ahead of expectations: PBT and PAT beat by 78% and 72% respectively. Again, the revenue lines were the main drivers. Funding income beat by 21% while non-interest income was ahead by 32%. As such profit before provisions came in 26% ahead of our forecast. Slight positive and negative surprises on the loan loss provisions and opex lines offset each other.