Access Bank: Still creating long-term value for shareholders
…9M’19 financial scorecard impresses investors …analysts’ ‘buy’ rating means stock currently undervalued
Access Bank Plc is one of the teir- 1 lenders that recently reported impressive financials for the nine months (9M) period ended September 30, 2019. A review of the financials published for the investing public shows the bank is already reaping synergies from its six months old business combination with Diamond Bank.
The 9M’19 financials
In the review 9M period to September 30, Access Bank grew its gross earnings by 37 percent year-onyear (y/y) and 15 percent quarter-onquarter (q/q) to N513.7billion (9M 2018: N375.2billion), with interest and non-interest income contributing 79percent and 21 percent respectively.
The bank’s Interest Income grew by 48percent to N405billion in 9M 2019 (9M’2018; N274.5billion), coming from the combination with Diamond Bank coupled with the growing efficiency of the bank’s balance sheet.
On the other hand, Non-interest Income increased by 8percent y/y to N108.6billion in 9M 2019 from N100.4billion in 9M 2018, largely from increased retail commissions. Following its merger with Diamond Bank in March 2019, Access Bank Plc has become one of Africa’s largest retail banks by retail customer base.
Access Bank’s Profit Before Tax (PBT) for the 9M’2019 period was
N103.1billion, which implies an increase of 47percent when compared with 9M 2018 level of N70.3billion, while Profit After Tax (PAT) increased by 44percent to N90.7billion from N62.9billion in 9M 2018.
Return on Average Equity (ROAE) stood at 21.9percent with a Return on Asset (ROA) of 2.1percent in the period. The asset base of Access Bank remained strong and diversified with growth of 33percent year-to-date (YTD) in Total Assets to N6.61trillion in September 2019 from N4.95trillion in December 2018.
Net Loans and Advances totaled N2.94trillion as at September 2019 ( December 2018: N2.14trillion), while customer deposits increased by 65percent to N4.24trillion in September 2019, from N2.57trillion in December 2018. The balance sheet growth is reflective of the bank’s drive to increase lending and low cost deposits.
Capital Adequacy Ratio (CAR) remained strong at 20.3percent, reflecting full impact of the IFRS 9 implementation as Risk-weighted Assets increased by 26percent.
Transitional CAR stood at 23.9percent. Similarly, Liquidity ratios of 48.5 percent (September 2018: 44.2percent), remained well above regulatory requirements.
Non-performing loans (NPL) ratio stood at 6.3percent as at September 2019 (December 2018: 2.5percent). Net Interest Margin (NIM) of 6.8percent in 9M 2019 from 5.3percent in 9M 2018 while Cost of Funds (COF) decreased 40 basis points (bps) y/y to 5.2percent from 5.6percent in 9M 2018.
Yield on Assets of 13percent went up 110 bps y/y from 11.9percent in 9M 2018. Cost-to-income Ratio (CIR) reduced by 170bps y/y to 63.1percent in 9M 2019 (9M 2018: 64.8percent).
With this post merger 9M’ 19 scorecard, Access Bank Plc has proven its position as a diversified financial institution which combines strong retail customer franchise and digital platform with deep corporate banking expertise and proven risk management and capital management capabilities.
Research analysts’ comments In their November 4 equity note, the Usoro Essien’s team of analysts at Vetiva Research set a reviewed target price (TP) of N12.38 per share for Access Bank (Previous: N12.43). They noted that the bank’s nine months profit strengthened despite cost pressures.
“Q3 2019 was a challenging quarter for most banks under our coverage; hence, we were not overly perturbed by the bank’s weaker than expected Q3 performance. The bank’s shares have gained 9.6percent year-to-date (YTD) and are currently trading at a P/B of 0.5x versus a Tier-i peer average of 0.7x”.
Also, research analysts at Lagosbased Cardinalstone had in their October 28 note to investors assigned Access Bank stock a “Buy” rating. The analysts also identified some positives in the bank’s nine months scorecard.
“We note that Access Bank was one of the few banks that met the Central Bank of Nigeria (CBN) loan to funding requirement as at September 2019.
“Notwithstanding the 4.7percent quarter-on-quarter (QOQ) increase in operating costs, we note the improvement in efficiency as cost to income moderated by 200 basis points (bps) during the quarter.
“Year-to-date, cost to income has declined by 80 bps to 63.1percent despite the one-off integration costs incurred. We believe the moderation in cost to income ratio suggests that the bank is already reaping synergies from its merger with Diamond”, according to research analysts at Cardinalstone.
Also in their market commentary on the nine months scorecard of Access Bank Plc, the Guy Czartoryski-led research analysts at Coronation Merchant Bank said, “We have a target price of N8.70 per share for Access Bank and given the upside relatives to current price of N7.50 per share, we maintain our ‘buy’ rating on the stock,” research analysts at Coronation Merchant
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The equities market ended Oc t o b e r 2019 bearish, as the Nigerian Stock Exchange ( NSE) All Share Index ( ASI) dipped by 4.6percent month-on-month (m/m) and year-to-date (YTD) loss worsened to -16.1percent (September-12.1percent).
This was amid Q3 earnings releases and corporate action announcements. However, the last week of the review month witnessed some buying interest, following CBN regulation which barred Non-banking corporates from accessing the OMO market.
Accordingly, the NSE-ASI ended 3 of 5 trading days in the green territory. However, on a week-on-week (w/w) basis, the profit takers had the upper hand, as the NSE-ASI fell by 21 basis points (bps) while yearto-date (YTD) return worsened to 16.3percent.
On a w/ w basis, we observed a mixed performance across the 6 sectors we track, as 3 sectors closed the week in the green territory while the other 3 traded southwards. The Oil & Gas sector index (+5percent) led the gainers camp, buoyed by price appreciation in Seplat (+9.28percent). The Industrial Goods (+ 1.1percent) and Insurance sector followed (+ 0.3percent), thanks to gains recorded by Cement Company of Northern Nigeria (+6percent), Dangote Cement (+ 2.4percent ) , AIICO (+ 11.1percent) and Continental Re (+0.42percent).
On the flip side, the Banking (-0.5percent) and Consumer Goods (-0.7percent) sectors traded in the red territory, dragged by price declines in Gtbank (- 4.2percent),
Stanbic (-5.4percent), and Nestle (-1.7percent). In the telecommunication space, we saw a renewed selling interest in MTNN (-2.7percent).
The market was abuzz with corporate actions throughout the prior week. Notably, the biggest bank by assets in Nigeria- Access Bank announced its acquisition of controlling interests in Transnational Bank of Kenya Plc. In the cement industry, Dangote Cement announced its intention to conduct a share buy back as well as a reverse stock split. Also, Cement Company of Northern Nigeria announced a proposed merger with BUA’S Obu cement, which will lead to Obu Cement replacing CCNN on the main board of the Exchange.
Also, Global Spectrum Energy Services Plc (N0.05/ share), Nestle (N25/share), Se p l at ( $ 0 . 0 5 / s ha re ) , Nigerian Breweries (N0.50/ share) all proposed to pay interim dividend. Meanwhile, we saw a spree of earnings announcements from listed players looking to beat the exchange’s deadline for earnings publication.
Looking into November 2019, we expect to see renewed interest in the equities market following tighter regulations surrounding participation in the OMO market by non-bank corporates. Also, increased activities are expected to be driven by positioning for Full Year 2019 dividend payments.
Money Market: Stop rates crash at the NTB auction
For the previous week, overall system liquidity remained buoyant, with naira injections surpassing outflows. In terms of inflows, we saw OMO maturities ( N346.4billion) and NTB maturities (N132.5billion) hit the system, however, these were mopped up by corresponding OMO (N363.1billion) and NTB (N132.5billion) sales. Also, according to CBN’S financial data, there was an OMO repayment of N507.4billion during the review week; however details of the inflow were unknown as at the time of this report.
In all, money market indicators reflected the high liquidity level, as average interbank funding rates –open buy back (OBB) and Over Night (O/N) rates closed the week lower at 3.5percent (versus prior Friday’s 6.4percent).
Elsewhere, primary market activities were upbeat, as local investors “shut out” from OMO auctions, scrambled for NTB instruments. At the NTB auction, while the Debt Management Office (DMO) offered N132.5billion, total subscription was N565.5billion, with significant interests across all maturities offered [Bid to cover: 91-day (2.6x), 182-day (4.6x) and 364-day (4.7x)]. With the overwhelming demand, the DMO was able to crash rates compared to the previous auction, as stop rate on the 91-day was 9.5percent (previously 10.8percent), 182day at 10.5percent (previously 11percent) and 364- day at 11.5percent ( previously 12.9percent). For the OMO auction held on Thursday, the CBN offered a total of N330billion, with N50billion on offer for the 96 & 187-day bills and N230billion on the longest maturity. Demand remained strong for the 364-day (bid to cover: 1.8x) even though the auction was limited to only banks and foreign portfolio investors (FPIS). Meanwhile, demand for the 96-day (0.2x) and 187- day ( 0.2x) bills remained underwhelming. Like the NTB auction, stop rates across the maturities offered inched lower by an average of 4bps, with the CBN keeping rates high enough to attract FPI inflows.
With demand unfulfilled at the auctions, we saw it filter into the secondary market, as average treasury bill yields declined by 36 basis points (bps) w/w to 12.4percent.
Flour Mills of Nigeria Plc recently released its unaudited half year ( H1) results for the year 2019 which shows the company sustained growth in Profit After Tax (PAT) which increased by 16percent to N5.9 billion from N5.1 billion in H1’2018. Despite the challenging operating environment and continuing pressures on the profitability of most companies in the Fast- Moving Consumer Good Sector, Flour Mills of Nigeria group’s unaudited half year result reflects the management’s strategy and commitment to growth and value creation.
Key highlights of the result at the Nigerian Stock Exchange (NSE) show the group recorded volume growth of 6percent when compared to the same period of last year; Profit Before Tax (PBT) came in at N8.6 billion, compared to N8.3 billion in H1, 2018, representing 4percent increase year-on-year (YOY). Finance Cost dropped to N8.8 billion, compared to N11.2 billion in H1’ 2018 (21percent decline YOY).
The company ’s management’s deleveraging strategy and lowered interest rates continue to achieve desired results.
Although the revenue from some of our food businesses was adversely impacted by lower volumes, Pasta and Noodles recorded positive growth in base products, and the sugar business continued to show remarkable growth in line with projections. The Agro-allied business also continues to show improvements especially in the Animal feeds and Fertilizer segments.
Commenting on the result, Paul Gbededo, the Group Managing Director, said: “We have posted an impressive result for the first half of the year with Profit After Tax increasing by 16percent to N5.9 billion when compared to last year.”
“I am confident that we are on track to achieve our growth targets for the year as we continue to improve operational efficiency, reduce our finance cost and ultimately grow the wealth of our shareholders by increasing earnings per share,” he added.