We Worry About Efficiency of Access Bank Plc – Analysts
Equity research analysts at Cardinalstone Limited, an investment management firm, have expressed worry over efficiency of Access Bank Plc in financial year 2020.
As a result of the bleak earnings outlook for the lender, equity analysts cut the bank’s price target by 53%.
Cardinalstone stated that cost pressure could impede the bank earnings growth in the financial year 2020.
Traded on the floor of the Nigerian Stock Exchange yesterday at ₦6.15, Access Bank market capitalisation settled at ₦218.603 billion, though Cardinalstone analysts set price target of ₦7.82.
NSE 52-week high point shows that lender share price had peaked at ₦12 while its lowest price in the period had been ₦5.30.
Meanwhile, given the lender’s performance expectations, analysts forecast weak earnings for 2020, dragged by higher expected credit losses (ECLs) amidst increasing operating cost burden.
Cardinalstone said: “Our estimates assume cost of risk rising nearly two-fold to 1.2%, while cost to income ratio edges 50 basis points (bps) higher due to COVID-19 induced delay in actualizing some merger synergies”.
The investment firm also said that it expects Access Bank’s net interest income to be pressured by moderating asset yields and weaker loan growth (+7.0%).
However, it is likely that net interest margin (NIM) could avoid a steeper fall on realization of some post-merger funding cost synergies.
“We see scope for non-interest revenue (NIR) improvement, partly supported by potential trading gains compared to net trading losses in 2019”, analysts stated.
Equity research analysts at Cardinalstone view the ₦84.3 billion derivative gains in the first quarter of 2020 as largely one-off and project lower potential gains in subsequent quarters.
“We see NIR support from loan recoveries of ₦15 billion as at Q1’20 but expect the pace to slowdown in subsequent quarters.
“Net fee income could flatten by 1.5% year on year as a result of COVID-related weaknesses.
“We worry about efficiency for Access in financial year 2020”, Cardinalstone explained.
Although Management has alluded to improved cost synergies of about ₦33 billion in potential savings, analysts noted that some expense lines are already at, or more than, 50% of amounts incurred over 2019 and could potentially worsen.
In effect, Cardinalstone said it projected 15.3% growth in pre-provision income for 2020 could be undermined by a 16.2% jump in operating costs.
“Following adjustments to our estimates we slash our 12-month target price to ₦7.82 compare to ₦11.97 previously set.
“Our target price implies a 28% upside to our reference price, hence we retain our BUY rating”, analysts at Cardinalstone stated.
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We Worry About Efficiency of Access Bank Plc – Analysts
