Access Bank 6M-2019: Impairment Charges Constrained Amid Efficiency, Costs Remain High- Imperial Assets

6M-2019 Performance Review
AccessBankPlctoday, the 5th of September 2019 released its audited half-year financial statements for the period ended 30th June (6M-19) 2019. A close analysis of the results showed that both gross Income (GI)andNet Income (PAT)grew by 28.2%and 76.9% to₦324.38 billion and ₦63.03billion respectively compared to6M-18figures. Interest and similar income at ₦272.9 billion constituted 84.13% (73.7% in 6M-18) of the GI achieved. Loans and advances to customers grew by 15.6% y/y and constituted 58.7% of the interest and similar income achieved.
Impairment charges constrained amid efficiency
Post-merger, Access Bank witnessed improved management of loan book as total impaired charges dropped by 33.5% to ₦4.88 billion y/y compared to 31.9% in Q1-18. This is commendable when juxtaposed with challenges that have trailed other DMBs’ that have embraced merger in the industry. Notwithstanding, consolidated impaired loans and advances to gross risk assets rose to 6.43% compared to 4.70% in 6M-18. The management must work assiduously to restrain this figure from growing further which we believe they can achieve considering that prior to the merger, Access Bank was reputed to carry an NPL ratio of 14% (due to Diamond Bank’s high exposure).
Cost remains heightened in line with industry
Interest expenses rose by 16% to ₦117.75 billion in line with a spike in interest income. Operating expense (OPEX) rose by 26% to ₦122.48 billion due to AMCON and other regulatory commitments. However, cost-to-income dropped to 36.3% (vs 40.1% in 6M-18) due to spike on GI y/y.
Bottom lines remain healthy
The bank transited from the double-digit growth of 86.1% attained in 3M-19 to 76.9% in 6M-19 at ₦63.03billion. One other factor to the bottom-line growth was fee and commission income which spike by 24.5% y/y, due to growth on account maintenance charges (+96.5% y/y) and fees on electronic banking channels (+50% y/y). Pre-tax and post-tax margins stands at 22.9% and 19.4% (vs 18.1% and 14.1% in 6M-19). Based on outstanding shares of 35.55 billion, our computed 6M-19 earnings per share (EPS) stands at 177kobo, 16kobo less than the Bank’s reported 193kobo. Price/Earnings Ratio (PER) of 3.89x at a market price of ₦6.90 posted on Friday, 6th September 2019 was achieved.

Dividend yield to brighten shareholders’ lot
Access Bank’s Board of Directors has indicated it will reward shareholders with an interim dividend of 25kobo per share for the half-year ended 30th June 2019. At the closing market price of ₦6.90, the dividend yield is currently 3.62%.

We have a price target of ₦9.00 per share on Access Bank covering FY 2019 release period (6-Month). It gives an upside opportunity of 30.4% relative to the current market price. Therefore, we maintain a BUY rating on the stock.
Note that Access Bank currently has Loan-Deposit Ratio (LDR) of 63.36%, which is above the CBN minimum requirement of 60.0% for DMBs.