FBNQuest Access Bank Q3 2017 results review: Maintaining Neutral rating
Maintaining Neutral rating
- Single-digit cuts to our 2017-18E EPS forecast and price target: Following Access Bank’s (Access) Q3 2017 results, we have made modest reductions to our 2017-18E EPS forecasts (-6% on av.) and our price target (-3%). Our new price target of N9.6 is close to where the shares are trading. Management asserted that higher cost of funding in Q3 was due to a number of reasons, such as elevated interest cost following its bond issuance and the sterilisation of funds by the CBN. This explains the 3% reduction to our funding income forecasts. We have also made slight increases (c.1.4%) to our opex forecasts over the forecast period, following the negative surprise on this line in Q3. Management remained positive about the sustainability of non-interest income, reiterating that there is still demand for derivative products but that funding income would be prioritised if demand starts to wane on these products. As such, the changes we have made to non-interest income are modest. In contrast, following the positive surprise in loan loss provisions, we have lowered our cost-of-risk forecast for 2017 by c.30bps to 1.3% (in line with management’s guidance). Access Bank shares are trading on a 2017E P/B multiple of 0.5x for 13.5% ROAE in 2018E. The -500bp y/y reduction in our ROAE forecast in 2018E reflects our view of a stable naira, hence zero forecast for other comprehensive income (vs N21bn in 2017E). Having gained 67% ytd (vs. 36.5% ASI), and with the shares trading around our fair value estimate of N9.6, we have kept our Neutral rating unchanged.
- Q3 2017 PBT down 17% y/y: Access Bank’s Q3 2017 PBT of N20.9bn was down -17% y/y due to growth in operating expenses and, to a lesser extent, loan loss provisions outpacing revenues. PAT of N31bn, however, showed solid growth of 31% y/y, thanks to translation gains (foreign subsidiaries) and fair value gains on available-for-sale securities (AFS). Of the revenue lines, non-interest income growth continues to outpace funding income, the former growing by 10% y/y (though clearly slowing down vs Q2) vs the latter’s 1.3% y/y. Sequentially, PBT was flat: marked q/q declines in loan loss provisions and opex masked a -17.5% q/q decline in revenues. Compared with our estimates, although PBT missed slightly, by 5%, PAT was strongly ahead, by 76%, because we did not forecast any gains on the OCI line. Both revenue lines and opex surprised negatively by single digits but these were completely offset by the loan loss provisions coming in well below our expectations.