FRI, 16 SEPT, 2022-theGBJournal| Access Holdings (ACCESSCORP) released its H1 22 audited results after trading hours on Wednesday (14 September). The group reported marginal growth in Pre-tax profits (+0.4% y/y) and Net profits (+1.5% y/y) during the period. However, Pre-tax profits (-12.5% y/y) and Net profits (-9.6% y/y) for Q2 22 standalone fell. On the H1 22 EPS of N2.52, the board proposed an interim dividend of N0.20 (against N0.30 this time last year), below our expectations. This implies a gross interim dividend yield of 2.1% on the last closing price.
The group recorded decent growth in Pre-provision operating profits, supported primarily in Non-Interest Revenues (NIR), specifically Trading revenues. However, a rise in Loan loss provisions dampened its impact on earnings growth. Nevertheless, the group’s H1 earnings, when annualised, are ahead of our and consensus forecasts for FY 22 by 11.3% and 5.0%, respectively, owing to a positive surprise on the Tax expense line.
We expect the market to react negatively to the decreased dividend. The stock is down 3.8% y-t-d.
Interest income rose by 16.5% y/y in H1 22, primarily on 37.0% y/y (Q2 22: +59.5% 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 27.9% y/y. In addition, loan yields (+63bps y/y) were slightly higher compared with the prior year. However, interest income from other key lines fell, resulting in a 128bps y/y compression in the group’s Yield on assets.
Interest expense grew by a larger 46.1% y/y as the Interest on customer deposits (+91.3% y/y) almost doubled. 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 60.5% in H1 22, from 62.4% in H1 21. As a result, the group’s Cost of Funds (CoF) rose 30bps y/y to 3.2%. Consequently, and in contrast to its Tier 1 peers, Net Interest income (NII) fell by 1.3% y/y with the Net Interest Margin (NIM) compressing by 156ps y/y to 4.2%, on our calculations.
NIR to the rescue
Non-interest revenues (NIR) grew by a higher-than-expected 67.5%y/y in H1 22, as Trading revenues surged by 215.0% y/y. Notably, the N69.57bn earned from Trading revenues in Q2 22 was a record high for a single quarter. The growth came as the group recorded a Net gain on financial instruments at fair value of N64.14bn in H1 22 compared with a N23.26bn loss in H1 21.
Elsewhere, Operating expenses (Opex) grew by 35.4% y/y, mostly on personnel expenses (+33.9% y/y), IT and e-business expenses (+97.4% y/y), and AMCON surcharge (+27.0% y/y). Consequently, operating efficiency worsened, with the Cost-to-Income ratio rising to 65.6% (H1 21: 60.1%). Nevertheless, the growth in Net revenue offset the rise in costs and led to Pre-provision operating profits s growth of 6.7% y/y.
Further down the P&L, Loan loss provisions rose by 28.6% y/y, a consequence of the 9.9% expansion in the group’s loan book (Cost of Risk was flat at 1.6%), while the group recorded 1,321.2% growth in its Share of profit of investment in Associate. As a result, the Group’s Pre-tax profit rose by a marginal 0.4% y/y in H1 22. Notably, the group’s effective tax rate fell to 9.3% (H1 21: 10.8%), and led to Net profits growth of 1.5% y/y.
Asset quality continues to improve
Overall, asset quality continued to show a positive trend, as the NPL (non-performing loan) ratio declined to 3.7% in H1 22 (FY 21: 4.0%, H1 21: 4.3%) and is below the statutory limit of 5.0%. The group’s total capital adequacy ratio closed at 22.4%, significantly higher than the minimum regulatory requirement of 15.0%.
The Q2 results were unimpressive, in our view, says Ope Ani, Senior Analyst at Coronation Research, with earnings falling to a six-quarter low. The major culprits were weak NII growth, in the face of rising CoF pressure, as well as increased loan loss provisioning. We are also disappointed by the unexpected cut in the interim dividend. However, we understand that the group may be looking to conserve capital in order fund its upcoming acquisitions and the expansion of its Holdco operations.
Nevertheless, the solid performance in Q1 means H1 earnings are still tracking ahead of our and the market’s expectations. In addition, we are encouraged by the performance of the Rest of Africa business which grew PBT by 175.1% y/y and contributed 64.2% to the group’s PBT in H1 22 (H1 21: 23.4%). Like UBA (BUY, TP: N11.72), the performance highlights the diversification benefits of having Pan-African operations.
The company is on track to ‘Win with Africa’, exploiting significant digital and retail banking opportunities, supported by Nigeria and Africa’s demographics. Elsewhere, we like management’s dynamic view on the future of banking, as it makes a foray into the payments space, in addition to insurance brokerage, pension fund management and consumer lending.
As the group expands its operations, 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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