ACCESS Bank Bumper Earnings Excite Shareholders
Access Bank Plc, the largest lender by balance sheet size bolstered earnings performance in the first half of the financial year 2020.
Despite some regulatory and health induced challenges, the group reflated its profitability strongly.
In its audited H1 2020 results, there was a modest expansion of 3% year on year in pretax profit while post tax profit declined marginally by 0.03%.
Though non-interest revenue expanded by 194% year on year, moderation in net interest income, as well as expansion in operating expense and loan loss provision suppressed earnings over the period.
In its equity note, ARM Securities stated that the result came in ahead of its estimate largely due to the sharp growth in non-interest revenue.
Excluding the volatile line items (gains on derivative instruments and FX revaluation loss), PAT would have declined by 76.7% year on year.
Meanwhile, the group declared an interim dividend of N0.25/share (same as last year) which translates to a dividend yield of 3.9% based on last closing price.
“Given the volatile nature of the earnings, we choose to maintain our estimates save the potential impact of the revised savings deposit rate on interest expense.
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“Meanwhile, we expect operating expense to moderate going into the rest of the year as integration cost with Diamond bank fades out”, ARM Securities stated.
The firm also indicates expectation that lender’s profit after tax will expand moderately by 3.7% year on year to N101.1 billion over financial year 2020.
Based on better-than-expected earnings show, analysts upgrade estimates for the year.
Specifically, ARM Securities lifted estimate on target price to N9.8/share from N7.9/share, which then translates to a BUY rating on the stock based on last closing price.
However, the firm stated that it is not too optimistic on the stock given the volatile nature of the earnings as well as high operating cost.
“We continue to favour GTB and Zenith among the banks given their adequate buffers to withstand the prevailing pressures”, analyst said.
ARM said Zenith and GTB continue to command a better Return on Equity (Zenith – 21.5%, GTB – 26.8%) and operating efficiency (Zenith – CIR: 54.3%, GTB – 43.2%) compared to most other banks.
In the period, non-interest revenue expanded significantly by 194.5% year on year largely reflecting trading gains on fixed income instruments and gains on derivative instruments, masking a FX revaluation loss of N57.7 billion over the same period.
Meanwhile, E-business fee expanded by 151% year on year, a big contrast to other banks.
Despite a lower rate environment, interest expense expanded by 2.35% year on year reflecting higher borrowing cost which rose 44% and 49% increase in interest expense paid on deposits from other banks.
On the other hand, interest income faltered, owing to lower interest income on investment securities – a fallout of lower treasury rates.
On balance, net interest income declined by 18.7% year on year due to lower yield environment.
Further down, loan loss provision expanded by 237%, thus reflecting the impact of covid-19 on the bank loans.
At the same, the group operating expense also expanded by 39% as analyst recognised that the increased cost continued to reflect integration costs with Diamond Bank.
On the quarterly numbers, both PBT and PAT declined by 39.55% quarter on quarter and 50.9% quarter on quarter respectively.
In a similar trend with the H1 20 performance, Access Bank’s net interest income also declined on the back of lower interest income (-12.9% QoQ) and higher interest expense (+2.0% QoQ).
Elsewhere, ARM Securities stated that non- interest revenue moderated by 9.7% QoQ following lower gains on derivative instruments.
On other fronts, both operating expense and loan loss provision moderated by 7.0% QoQ and 8.1% QoQ1 respectively.
“Given the volatile nature of the earnings, we choose to maintain our estimates save the potential impact of the revised savings deposit rate on interest expense.
“Meanwhile, we expect operating expense to moderate going into the rest of the year as integration cost with Diamond bank fades out”, ARM Securities explained.
The investment firm however estimates PAT to expand moderately by 3.7% year on year to N101.1 billion over 2020.
“Our fair value estimate fair value estimate of N9.8/share as against N7.9/share previously translates to a BUY rating on the stock based on last closing price.
“However, we are not too optimistic on the stock given the volatile nature of the earnings as well as high operating cost.
“We continue to favour GTB and Zenith among the banks given their adequate buffers to withstand the prevailing pressures”, analysts stated.
Precisely, Zenith and GTB continue to command a better Return on Equity.
In the period, Zenith Bank ROE printed at 21.5%, GTB did 26.8% and in term of operating efficiency, Zenith’s cost to income ratio settled at 54.3%, while GTB printed at 43.2% compared to most other banks.
ACCESS Bank Bumper Earnings Excite Shareholders
