Earnings get stamina from pension stake disposal

Equity Research research@armsecurities.com.ng +234 1 270 1652 13 February 2017 Access Bank Plc. Stock Update Earnings get stamina from pension stake disposal Access disposes its stake in SIPML Late on Friday, Access filed a notice on the NSE that it had obtained regulatory approval for the disposal of its 17.6% stake in Stanbic IBTC Pensions Managers Limited (SIPML) - the pension subsidiary of Stanbic IBTC Holdings Plc. The disposal is in line with CBN s regulatory requirements in 2010 which mandated that banks without holding company s authorization divest equity holdings in non-core banking entities. SIPML is the largest pension fund administrator in Nigeria with 1.4million RSA contributors and AUM of N1.6 trillion using its most recent audited accounts (2015). Transaction raises prospect for sizable gain Access acquired the SIPML stake in 2007 for N75 million and as at 9M 2016 using a P/B multiple, the bank fair valued its stake at N957 million. Though the notice did not include information regarding the deal size, we look at data on precedent transactions in the sector over the last three years. (OVERWEIGHT: N7.96) Income Statement Data 2016 9M'm 2015 9M'm %chg Gross Earnings 274,468 257,590 7% PBT 72,004 60,372 19% Tax (14,909) (12,279) 21% PAT 57,095 48,093 19% Balance Sheet Data 2016-Sep 'm 2015 -Dec'm %chg Cash 603,595 478,409 26% Loans 1,800,939 1,365,831 32% Deposits 2,098,561 1,683,244 25% Fixed Asset 83,104 73,330 13% Net Assets 442,836 367,801 20% Stock Data Price N6.94 52-week range N3.60 N7.18 Market Cap. (N'm) 200,760 1-month Avg. Vol 25,038,143 Curr. PE 2.6x Bloomberg Ticker ACCESS:NL Access Bank Plc- Share Price Trend 8 7 6 5 4 3 Jan-16 Feb-16 Mar-16 Analyst(s) Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Wale Okunrinboye adewale.okunrinboye@arm.com.ng

Table 1: Data on recent M&A in Nigerian PFA space Date Investor PFA Deal size ($'m) Stake Net Assets (N m) Transaction size to book value (x) 2014 Helios ARM Pensions 50.0 Minority* 3,792 n/a 2015 Actis Sigma Pensions 62.0 Majority* 3,444 n/a 2015 Axa Mansard Penman Pensions 9.5 60% 1,268 2.48 Source: Wall Street Journal, Actis, Axa Mansard Plc 2015 Annual report, ARM Research * no disclosure on size of stake In its most recent audited report, SIPML net assets stood at N17.8 billion implying Access share on book value basis of N3.1 billion. Using multiples from AXA Mansard s 60% acquisition of Penman Pensions at 2.5x net assets, we estimate that Access should have sold its take deal size of at least N7 billion which should generate a profit on its income statement. That said, Penman Pensions was a relatively small pension fund with AUM of circa 1% of SIPML. A naïve scaling for AUM size suggests potential valuation north of N12 billion. Overall, we see higher prospects for Access to report significant gains on this transaction in its income statement. In keeping with trends in the Nigerian environment where announcement of special dividends accompany disposals of investments, there exists higher prospects for a special dividend announcement. Nevertheless, given the current soft macro environment, one could argue that Access could retain some of the profits from the transaction to bolster capital buffers. We remain positive on Access ahead of FY 16E release We have been bullish on Access over the last one year as the bank positioned itself to be a beneficiary from naira weakness in 2016 via several cross-currency swaps ($900million outstanding as 9M 16). Furthermore, its low exposure to upstream O&G (5% of loan book) and no exposure to troubled power sector loans implied limited exposure to sectors facing macro headwinds. We think the announcement implies fresh upside to our earnings estimates (2016E: +21% YoY) and prospects for the announcement of a special dividend could spur share price rally. The stock closed 5% higher on Friday following the announcement.

Last weekend, the Access-Lagos Marathon took place with Kenyan runner Abraham Kiptum winning the 42km dash round the streets of Lagos for the second year running, shaving one minute of his 2016 time to finish the race in 2hours 15 minutes. As with the Kenyan, chances appear bright that Access looks set for the best FY 16 results announcement with a fresh burst of pace from the sale of the SIPML investment. We have positive view on Access with an OVERWEIGHT rating (FVE: N7.96). Figure 1: PBT/PAT growth and DPS PBT (N'billion) PAT (N'billion) DPS - RHS 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 75.23 65.87 42.86 43.06 37.50 16.71 2011 2012 2013 2014 2015 2016E 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Source: Company financials, ARM Research On a related note, in the typical merger arbitrage move, Stanbic could succumb to negative sentiment as investors fret over the likely source of funding for the purchase of Access minority stake in SIPML. Given its failed attempt at raising capital, worry of potential cut in dividend payout ratios or fresh gearing to fund the purchase could spur bearish sentiments against the stock.

Summary of Results and Forecasts - Naira (N) QUARTERLY Income Statement (N 000)* Q1 2016A Q2 2016A Q3 2016A Q4 2016E Gross earnings 80,272 93,838 92,396 103,681 Interest Income 55,437 56,855 61,960 70,467 Interest Expense (20,814) (23,027) (24,681) (28,698) Net interest income 34,623 33,828 37,278 41,768 Non-Interest Revenue 24,737 36,982 30,437 33,271 OPEX (34,378) (35,556) (35,811) (41,661) Provisions (2,398) (7,814) (3,302) (17,078) PBT 22,583 27,440 28,602 16,301 Tax (3,164) (7,372) (4,290) 588 PAT 19,419 20,068 24,312 16,888 ANNUAL Income Statement (N 000) * FY 2014A FY 2015A FY 2016E FY 2017F FY 2018F Gross earnings 245,218 337,404 377,081 379,175 402,025 Interest Income 176,918 207,803 251,653 269,432 288,990 Interest Expense (76,901) (102,421) (107,901) (117,732) (140,481) Net interest income 100,017 105,382 143,752 151,700 148,509 Non-Interest Revenue 68,263 129,450 125,427 109,743 113,035 OPEX (104,605) (145,569) (150,603) (158,436) (167,687) Provisions (11,652) (14,225) (27,941) (24,814) (22,188) PBT 52,022 75,038 90,635 78,192 71,670 Tax (8,959) (9,169) (15,408) (15,638) (14,334) PAT 43,063 65,869 75,227 62,554 57,336 Balance Sheet (N 000) * Assets Net Loans 1,110,464 1,365,831 1,862,732 1,908,775 2,017,128 Fixed Assets 69,660 73,330 75,530 77,796 80,130 LT investment 357,284 389,939 497,905 522,800 548,940 Other Assets 104,616 161,099 402,596 431,481 449,626 Total Assets 2,104,361 2,591,330 3,494,355 3,587,471 3,737,058 Liabilities Deposits 1,454,419 1,683,244 2,188,218 2,231,982 2,298,941 Borrowings 221,567 386,889 560,988 594,648 630,327 Total liabilities 1,826,950 2,223,529 3,028,736 3,076,994 3,185,466 Shareholders' fund 277,411 367,801 465,619 510,477 551,592 Key Ratios FY 2014A FY 2015A FY 2016E FY 2017F FY 2018F EPS 1.88 2.59 2.60 2.16 1.98 DPS 0.60 0.57 0.78 0.65 0.59 BVPS 12.12 14.48 16.10 17.65 19.07 ROE 16.5% 18.3% 18.1% 12.8% 10.8% ROA 2.2% 2.6% 2.5% 1.8% 1.6% Financial Leverage 7.59 7.05 7.50 7.03 6.78 Asset yields 12.9% 11.5% 11.8% 11.1% 11.4% WACF 4.6% 4.8% 4.3% 4.0% 4.7% Net interest margins 7.3% 5.9% 6.7% 6.2% 5.9% Cost to income 62% 62% 56% 61% 64% Cost of risk 1.0% 1.0% 1.5% 1.3% 1.1% NPL ratio 2.2% 1.8% 2.5% 3.0% 2.5% Loan to Deposit 76% 81% 85% 86% 88% Liquidity ratio 28% 33% 38% 38% 38% Source: ARM Research *unless otherwise stated

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