Access Holdings gets rating upgrade to ‘outperform’ on bright prospect

• +28% upgrade to ‘24f EPS, price target 

Phillip Isakpa in Stockport, UK

Analysts at FBNQuest Capital say they have upgraded their 2024-2025 earning per share (EPS) forecast by an average of 28 percent, as well as raised the price target for Access Holdings plc following an update of their views on the operating and regulatory environment.

The analysts explained that on a relative basis, Access Holdings’ shares trade on a 2024 forecast price-to-book multiple of 0.2x for a 2025 forecast return on average equity (ROAE) of 16.4 percent, adding that, “at current price levels, our new price target of NGN37.4, implies a potential upside of +132.9%. We upgrade our rating to Outperform from Neutral.”

In a note prepared by the analysts, and seen by Business a.m., they also said they were adjusting their earlier risk-free rate for the multinational financial institution upward by +250 basis points to 17 percent to reflect what they said was the rise in government bond yields.

In their commentary qualifying the rating upgrade, the analysts stated that the Q4 2023 performance of the bank was better than expected, “thanks to solid pre-provision results,” adding that regarding their expectation for full year 2024, “we expect a strong funding income result due to the high interest rate environment in Nigeria and expectation for decent loan growth.”

According to the analysts, their modelling produced a 2024 forecast organic loan growth of +15 percent year-on-year, against a 2024 forecast deposit growth rate of +20 percent year-on-year.     

“As such, we expect ‘24f NIM [net interest margin] around management’s lower limit guidance of 5%. With respect to asset quality, we expect a ‘24f non-performing loans (NPLs) ratio of about 3.0% (vs 2.8% in FY’23),” they wrote.

Explaining the slight increase in the NPL ratio, the analysts said it largely reflects the impacts of existing and potential macroeconomic risks, adding that, “on the non-interest income line, we believe risks are tilted to the downside; firstly, the CBN’s directive mandating banks on square net-open positions implies a cessation in FX revaluation gains.” 

They also observed that CBN’s settlement of its foreign exchange obligations (including swaps) could visibly reduce gains on derivatives, noting that, “as such, we have made cuts of around -6% to our ‘24f non-interest income forecast.”

Commenting further on other aspects of the profit and loss (P&L) statement, the analysts said their 2024 cost-of-risk forecast of 1.7 percent tracks management’s guidance of less than 2.0 percent, while their forecast 2024 cost-to-income ratio (ex-provisions) of 60.9 percent tracks ahead of management’s target of 50–55 percent. 

Also, regarding capital, the analysts forecast a slight drop in capital adequacy (CAR) to 18.7 percent in FY’24 based on organic performance, but they noted plans by Access Holdings to raise N365 billion in a rights issue in FY’24, which they further noted is a part of a larger $1.5 billion capital plan over the next five years. 

The analysts’ note further stated that in the light of the revisions, their forecast of profit before taxation of N576.9 billion would suggest a 20.9 percent drop year-on-year, but they pointed to what they described as “strong set of Q4’23 results driven by underlying income,” again suggesting that the international Tier-1 bank has a knack for finishing strong.

In a roll the tape on the fourth quarter 2023 performance, the analysts wrote:

“Access’ Q4’23 PBT and PAT grew markedly, thanks to a +137.7% y/y growth in pre-provisions profit. Funding and non-interest income grew by +286.1% y/y and +82.1%, y/y respectively. Cost-of-risk declined by -778bps y/y to 4.7%. Similarly, the cost-to-income ratio (ex-provisions) declined by -174bps y/y to 25.8%, thanks to income effects. The effective income tax rate declined by -690bps y/y to 15.1%.”