MON 21 MARCH, 2022-theGBJournal| Access Bank Plc, Nigerian multinational commercial bank owned by Access Bank Group, published its FY 21 audited results after trading hours on Thursday (17 March), reporting Pre-tax profit of +40.3% y/y (N176.107 billion) and Net profits +51.2% y/y (N158.328 billion) growth during the period. Similarly, Pre-tax profit (+347.6% y/y) and Net profits (+912.8% y/y) for Q4 21 standalone also grew significantly.
Accordingly, on the FY 21 EPS of N4.58, the board proposed a final dividend of N0.70 (FY 21 total dividend: N1.00), in line with our expectations. This implies a final dividend yield of 7.1% on Friday’s closing price.
On balance, earnings were driven primarily by growth in Non-Interest Revenues (NIR), specifically trading revenues (the group recorded significant FX gains) and Fees & commission income. Consequently, the group’s earnings beat our and consensus forecasts for FY 21 by 16.3% and 15.5%, respectively, owing to positive surprises in NIR and Tax expense.
The stock lost 5.8% during the last trading session but is up 5.4% y-t-d. We expect the market’s focus to shift to the increased dividend and the still-attractive yield.
Interest income rose by 23.0% y/y in FY 21, primarily on 19.8% y/y (Q4 21: +50.5% y/y) growth in Interest earned on loans to customers. The rise came as the group recorded substantial loan growth during the period — gross loans grew by 28.0% y/y, higher than our 18.0% forecast. This marked the largest y/y expansion in the group’s loan book since FY 19, following the acquisition of Diamond Bank.
In addition to Interest on loans, Interest income from investment securities (+33.3% y/y) also supported interest income following significant expansion in the group’s Investment Securities portfolio (+61.6% y/y).
Interest expense grew by 32.7% y/y driven by a 41.4% rise in Interest on customer deposits. This is likely due to the group rebalancing its deposit base and opting for more expensive term deposits during the period. Notably, the group’s Current Account Savings Account (CASA) mix deteriorated to 58.4% in FY 21, from 64.6% in FY 20.
In addition, the 77.1% y/y growth in Interest on Interest-bearing borrowings and other borrowed funds also weighed on Interest expense as the group grew its long-term debt funding by 49.5% y/y. As a result, the group’s Cost of Funds (CoF) rose slightly to 3.4% (FY 20: 3.3%). Consequently, Net Interest income grew by 14.6% y/y. However, the Net Interest Margin (NIM) compressed by 74bps to 3.9%, on our calculations, due to pressured asset yields during the year.
Non-interest revenues (NIR) grew by a higher-than-expected 30.6% y/y in FY 21 (Coronation Research forecast: +2.0%) as Trading revenues rose by 26.8% y/y, the largest growth since FY 17. The growth came as the group recorded a Net foreign exchange gain of N101.10bn in FY 21 compared with a N7.57bn loss in FY 20.
In addition, Fees & commissions income grew 26.7% y/y, supporting NIR, following the substantial rise in Credit-related fees and commissions and Channels and other E-business income. Notably, the contribution of NIR to net revenue crossed the 50.0% mark for the first time, rising to 52.5% in FY 21 (FY 20: 49.0%).
Elsewhere, Operating expenses (Opex) grew by 13.7% y/y, mostly on regulatory (AMCON) costs and IT and e-business expenses. However, following the larger growth in Net revenues than Opex, operating efficiency improved, with the Cost-to-Income ratio falling to 58.8% (FY 20: 63.4%), the lowest level since FY 16. Consequently, Pre-provision operating profits grew by 37.6% y/y.
Further down the P&L, Loan loss provisions rose by 32.3% y/y (Cost of Risk rose to 2.0% vs 1.8% in FY 20), while the group recorded N92.65m in Share of profit of investment in Associate. Overall, the Group’s Pre-tax profit rose by 40.3% y/y in FY 21. Notably, the group’s effective tax rate fell to 9.3%, the lowest level since FY 18, following an increase in Tax-exempt income.
Overall, asset quality continued to show a positive trend, as the NPL (non-performing loan) ratio declined to 4.0% in FY 21 (FY 2020: 4.3%) and was below the statutory limit of 5.0%. The group’s total capital adequacy ratio closed at 24.8%, significantly higher than the Basel II minimum regulatory requirement of 15.0%.
‘’The results were impressive,’’ says analysts at Coronation Research, ‘’beating our and the market’s expectations following a late surge in trading revenues in Q4 21.’’
In addition, the increased dividend implies a still attractive dividend yield – more than the current yield on the 1-year T-bill. The bank has entered the final year of its five-year corporate strategy (2017-2022).
As it transitions into a Holdco structure, we expect the diversification benefits of this to strengthen its investment case. Finally, the valuation remains compelling, in our view. Accordingly, we maintain our BUY recommendation on the stock.’’
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