Access Bank: equity analysts raise target price, expect trend busting result

Access Bank Plc.’s share opened at N7.35 on Tuesday at the floor of the Nigerian Stock Exchange, total share outstanding is 35,545,225,622 and investors value the bank at N261.257 billion.

The Nigerian Stock Exchange has been largely bearish since the beginning of the year but Access Bank share has outperformed the market with 13.08% year to date return.

What that means is that investors who took position in the bank stock at the beginning of the year have increased their fortune by more than 13%.

Importantly, the bank earnings performance is expected to strengthen on the back of cost synergy, improved assets quality and aggressive business development.

Analysts are looking forward to significantly improved earnings performance over the second quarter 2019; investors are expecting market to price the benefit of synergy into the stock price.

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With this expectation of strong earnings from improved fundamentals, and surefooted strategy at the corporate level, equity analysts have raised Access Bank Plc.’s target price.

The updated trailing price range from N10.36 to N12.50, some equity analysts’ notes revealed.

Analysts said there is potential upside in the bank stock for long term investors – considering persistent bearish trend in the market.

It was gathered that given that the bank has successfully completed its merger deal, its target synergy would start coming in from the second half. Third quarter results especially is a sign of what to expect from future performance.

Vetiva analysts expect cost synergies to improve 9-months profit margin. Other analysts also estimated improve results across key metrics; expect liabilities risk from merger to be lower in Q3.

Analysts at Sterling Asset Management and Trustees Limited (SAMTL) foresee an enhanced balance sheet from synergy derived from the merged entity as a key driver for growth.

In its projection for the third quarter of financial year 2019, Vetiva estimated that gross earnings would grow 20% over the amount achieved in the second quarter to ₦196.7 billion, despite the projected decline in interest income.

Interest income would come to ₦141.6 billion in the third quarter from ₦162.1 billion in the second quarter, analysts estimated.

Vetiva analysts said this is a result of their expectation of a return to normal non-interest income of ₦55.1 billion compare to ₦2.1 billion after the significant FX trading losses incurred in the second quarter.

Operating income is estimated to improve by 21% in the third quarter of the year to ₦121.6 billion, while analysts forecast a 12% quarterly decline in operating expenses to ₦61.5 billion.

They noted that ongoing cost synergies and lower professional fees drive expectations for a dip in operating expenses.

Vetiva analysts reckoned that this would result in an operating profit of ₦60.1 billion for Q3’19 and ₦139.1 billion for the 9 month period as against ₦78.6 billion in the corresponding period in 2018.

Meanwhile, provisions are projected to go up in the quarter to ₦10.3 billion, a result of the bank’s expanded loan book and exposure to the riskier priority sectors.

Read: https://dmarketforces.com/access-bank-targets-65m-customers-by-2022/

Thus, the bank profit before tax (PBT) is forecasted to grow by 72% quarter on quarter basis to ₦49.8 billion, bringing PBT for the 9 months period to ₦123.9 billion.

Similarly, PAT is projected at ₦44.8 billion, which is 105% higher quarter on quarter and ₦107.7 billon for 9 months in the financial year 2019 result, which gives the bank a basic EPS of ₦3.03 for the period.

Access Bank expanded total assets by 31% in financial year 2018 to ₦6.4 trillion with liabilities (customer deposits) of ₦4.2 trillion up 63% in the first half 2019, expanding faster than core assets (loans and advances up 34% in the first half to ₦2.9 trillion) during the period.

By asset quality, the bank has improved since Q1’19 when NPL was 10.0%, then it went down to 6.4% in H1’19, albeit above the H1’18 (Pre-merger) figure of 4.7% – loan restructuring and a few recoveries have reduced NPLs by over ₦100 billion post-merger.

The banks LDR of 66% remains well above the CBN floor of 60%, while capital adequacy ratio remains at 20.8% compare to 16% set for international banking license.

SAMTL analysts forecast gross earnings and interest income to grow by 29.79% and 50.77% to ₦486.6 billion and ₦409.3 billion respectively in Q3 2019.

They think profit would come handy, forecasted PBT and PAT to grow by 58.21% and 50.27% to ₦111.1 billion and ₦94.5 billion respectively.

E: editor@dmarketforces.com

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