Equity Research

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1 Equity Research April 2016 Access Bank Plc. Earnings Report 3 months ended 31 st March, 2016 Benign funding costs and provisioning drive strong Q1 (STRONG BUY N5.55) Access Bank Plc. (Access) reported 5% rise in gross earnings to N80.3 billion, and in a departure from soft earnings growth thus far in Q1 16, the bank recorded stronger earnings growth with PBT and PAT climbing 37% and 42% YoY to N22.5 billion and N19.4 billion respectively. Faster loan growth fuels interest income strength Over Q1 16, Access reported 5% QoQ expansion in net loans (+26% YoY) largely reflecting increased participation in the various on-lending programs to state governments. Amid a largely stagnant pattern in asset yields, the higher loan volumes drove stronger interest income over the period (+6% QoQ, +19% YoY). Income Statement Data M'm M'm %chg Gross Earnings 80,272 76,792 5% PBT 22,583 16,517 37% Tax (3,164) (2,850) 11% PAT 19,419 13,668 42% Balance Sheet Data 2016-Mar 'm Dec'm %chg Cash 506, ,409 6% Loans 1,437,882 1,365,831 5% Deposits 1,803,387 1,683,244 7% Fixed Asset 75,488 73,330 3% Net Assets 382, ,801 4% Stock Data Price N week range N3.48 N6.38 Market Cap. (N'm) 117,447 1-month Avg. Vol 6,488,135 Curr. PE 1.5x Bloomberg Ticker ACCESS:NL Access Bank Plc- Share Price Trend The impact of the balance sheet expansion helped mute impact of lower NIR (-31% YoY, -23% QoQ) over Q1 16. Weakness on this front reflects offsetting impact of a N3.3 billion loss in HFT (of which N2.7 billion is related to derivatives) and a drop in other income. Access management notes that on maturity of a derivative contract, valuation gains cycle through trading income with any losses on the spot exchange rate on contract closure is captured under HFT. Analyst(s) Wale Okunrinboye adewale.okunrinboye@arm.com.ng

2 Dovish monetary policy and mild provisioning buoy earnings Despite a 7% QoQ rise in deposits, driven by higher term deposits (+2pps to 44%), impact of the lower rate environment over much of Q1 was evident on Access numbers with interest expense declining 9% QoQ (and YoY). This resulted in a 60bps QoQ (-140bps YoY) drop in WACF to a twenty quarter low of 3.7%. Furthermore, OPEX growth was largely contained (-14% QoQ, +2% YoY) which drove improvement in cost-to-income ratio (YoY: -4.3pps, QoQ: -12pps) of 58%. At N2.4 billion, (-10% QoQ, -38% YoY) provisioning was mild with cost of risk sliding 70bps YoY (-10bps QoQ) to 0.7% as NPLs were largely flat from December at 1.7%. Access low provisioning reflects lower upstream O&G exposure (5% of total loans) and a lower price deck on these exposures. Supported by high coverage ratios of 215% and robust CAR levels (19.6%), Access has the buffers in place to manage the current weak economic cycle. Over the subsequent quarters of 2016, Access high share of term deposits raises prospects for an erosion of Q1 16 funding cost gains as monetary policy stance turns hawkish. Nonetheless, Access management guides that the bank still has 65% of its HFT forward positions ($1.7 billion) yet to mature at the end of Q1 16, which stokes prospects for sustained NIR gains over the rest of Access current P/E and P/B of 1.5x and 0.3x is in line with peer average. We are positive on Access, with 37% upside implied in our FVE (N5.55) relative to last trading price, keeping our STRONG BUY rating on the stock intact.

3 Summary of Results and Forecasts - Naira (N million) QUARTERLY Income Statement * Q1 2016A Q1 2016E Q2 2016E Q3 2016E Q4 2016E Gross earnings 80,272 82,001 82,151 86,473 94,970 Interest Income 55,437 58,341 59,327 62,787 67,532 Interest Expense (20,814) (23,808) (26,779) (28,821) (34,121) Net interest income 34,623 34,533 32,548 33,966 33,411 Non-Interest Revenue 24,737 23,661 22,824 23,686 27,438 OPEX (34,378) (37,027) (33,355) (35,811) (41,214) Provisions (2,398) (2,866) (11,283) (2,311) (4,954) PBT 22,583 18,301 10,734 19,529 14,681 Tax (3,164) (2,379) (1,395) (2,539) (1,909) PAT 19,419 15,922 9,339 16,990 12,773 ANNUAL Income Statement (N 000)* FY 2014A FY 2015A FY 2016F FY 2017F FY 2018F Gross earnings 245, , , , ,778 Interest Income 176, , , , ,951 Interest Expense (76,901) (102,421) (113,529) (114,710) (118,671) Net interest income 100, , , , ,280 Non-Interest Revenue 68, ,450 97,608 85,550 89,827 OPEX (104,605) (145,569) (147,407) (159,250) (172,402) Provisions (11,652) (14,225) (21,415) (15,325) (16,770) PBT 52,022 75,038 63,245 57,603 61,934 Tax (8,959) (9,169) (8,222) (7,488) (8,051) PAT 43,063 65,869 55,023 50,115 53,883 Balance Sheet (N 000)* Assets Net Loans 786,170 1,110,464 1,365,831 1,427,642 1,532,512 Fixed Assets 67,243 69,660 73,330 75,530 77,796 LT investment 417, , , , ,800 Other Assets 54, , , , ,972 Total Assets 1,835,466 2,104,361 2,591,330 2,715,472 2,853,671 Liabilities Deposits 1,454,419 1,683,244 1,767,407 1,855,777 1,948,566 Borrowings 221, , , , ,791 Total liabilities 1,826,950 2,223,529 2,309,030 2,411,798 2,532,711 Shareholders' fund 277, , , , ,968 Key Ratios FY 2014A FY 2015F FY 2016F FY 2017F FY 2018F EPS DPS BVPS ROE 16.5% 18.3% 14.2% 11.8% 11.7% ROA 2.2% 2.6% 2.1% 1.8% 1.8% Financial Leverage Asset yields 12.9% 11.5% 12.9% 12.9% 12.9% WACF 4.6% 4.8% 5.2% 5.0% 5.0% Net interest margins 7.3% 5.9% 7.0% 7.2% 7.4% Loan to Deposit 76% 81% 81% 83% 86% Cost to income 62% 62% 64% 69% 69% Liquidity ratio 28% 33% 29% 27% 26% CAR 18.2% 19.5% 21.3% 22.2% 23.0% Source: ARM Research *unless otherwise stated

4 ARM ratings and recommendations ARM now employs a two-tier rating system which is based on systemic importance of the security under review and the deviation of our target price for the stock from current market price. We characterize systemic importance as a function of a stock s ranking among the group of top 20 stocks by NSE market capitalization over a trailing 6 month period (minimum) to the review date. We adopt a 5 point rating system for this category of stocks and a 3 point rating system for stocks outside this group. The choice of top 20 stocks arises from the consideration that this group of stocks constitutes >75% of overall market capitalization and stocks outside this group are generally less liquid and individually account for <<1% of market capitalization. For stocks in both categories, the basis for ratings subject to target price deviation is outlined below: TOP 20 NON-TOP 20 Rating Deviation Rating Deviation STRONG BUY >20% BUY >20% OVERWEIGHT 10% 20 % NEUTRAL 5% 20 % NEUTRAL 0% 10 % SELL <5% UNDERWEIGHT -5% 0% SELL <-5% RECOMMENDATION KEY Rating BUY OVERWEIGHT NEUTRAL UNDERWEIGHT SELL Recommendation Accumulate security to a substantial extent constrained only by portfolio diversification considerations Accumulate security to an extent moderated by cognizance of its benchmark weight Maintain status quo for security with respect to current holding i.e. keep if already holding and don t buy otherwise subject t reasonable portfolio constraints Minimise exposure to security taking cognizance of its index weighting Sell-off security completely from portfolio

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