What shaped the last week?
Global: Sentiment across the global space was mixed this week, as the ongoing conflict in Ukraine remains front and center. Starting in Asia, markets in the region traded mixed, with Japan’s Nikkei-225 and South Korea’s Kospi closing higher, while the Shanghai Composite and Hang Seng indices closed in the red w/ w.
Meanwhile, in European markets, investors remain focused on developments around the Russian-Ukrainian conflict; On Wednesday, Russian President Vladimir Putin announced that “hostile nations” would have to pay for natural gas in Russian rubles – as the nation reacts to sanctions imposed on it by Western powers. Germany’s Dax fell 0.44% w/w, with France’s CAC falling 0.61%; on the other hand, the London FTSE-100 rose 0.75% w/w. Finally, across North America, major markets in the region were trading in the green w/w at the time of writing. The health of the economy remains top of mind for investors as they assimilate the latest batch of economic data. Consumer confidence in the United States fell in March, according to a final report from the University of Michigan released on Friday. The Michigan Consumer Confidence Index (MCSI) fell to 59.4 in March, down 5.4% m/m. Elsewhere, oil futures prices fell after the EU announced it had reached an agreement with the United States to receive deliveries of liquefied natural gas, following the ban on Russian gas on several markets. The Dow Jones Industrial Average rose 0.25% w/w, while the Nasdaq Composite and S&P 500 rose 2.06% and 1.37% respectively.
Domestical economy: At its second meeting of the year, the Monetary Policy Committee (MPC) voted to keep all metrics constant. Unlike Ghana and Egypt which raised their policy rate to fight inflation and defuse monetary pressures, six members of the ten-man committee maintained the status quo. The apex bank reiterated its pro-growth view as it expects the Nigerian economy to grow 3.24% y/y in 2022 (Vetiva: 2.8% y/y). The Committee also expects its development finance activities to bring inflation under control over time. However, the big question remains, can the CBN remain neutral in times of monetary policy normalization? In light of the monetary policy trilemma, a weaker exchange rate or a higher interest rate may be needed to stimulate capital inflows, especially in times of heightened geopolitical tensions.
Shares: Nigerian stocks closed in the red this week as widespread losses saw the NGX fall 0.67% w/w to 46,958 points. Players in the consumer goods sector led all losses as the sector fell 1.10% w/w; the selling action of FLOURMILL (-3.13% w/w) and UNILEVER (-1.48% w/w) mainly weighed on the sector’s w/w performance. Turning to the banking sector, widespread losses across the space saw the banking index fall 0.66% w/w. Similarly, in the industrial goods space, WAPCO’s marginal losses (-0.62% w/w) saw the sector fall 0.02% w/w. Finally, the Oil & Gas space closed lower this week, losing 0.02% as losses from mid-cap companies weighed on its performance.
Fixed Income: Activity in the fixed income market this week was largely skewed to the sell side amid pockets of demand in some sessions. Earlier this week, the debt management office held the March bond auction where it bid 150 billion naira and sold 296.37 billion naira across the 10 and 20 year maturities at stop rate of 10.15% and 12.70% respectively. In the fixed income sector, benchmark bond yields rose 8 basis points on average w/w, triggered by selling actions on the short-mid end of the bond curve. Of note, the yield on the 14.20% FGN-MAR-2024 bond rose 60 bps w/w to 7.80%. Meanwhile, activity in the OMO and NTB spaces has been largely reduced this week, albeit with pockets of activity on some days. Yields in the OMO space closed flat w/w, while falling 7 bps on average in the NTB space.
Currency: Naira appreciated ₦0.27 on the I&E FX window to close at ₦416.33
What will shape the markets over the coming week?
Stock Market: We expect further mixed sentiment to begin the new week, amid the gradual waning of the effects of corporate actions that have dominated market activity.
Fixed Income: Following the aggressive sell-side action that dominated the bond space this week, we expect next week to start on a more positive note, amid pockets of buy-side action in the space bond. In the NTB and OMO markets, we expect liquidity and the latest PMA results to continue to dictate market activity.
Currency: We expect the naira to remain broadly stable across the various windows of the currency space as the CBN maintains its interventions in the foreign exchange market.
ACCESS BANK PLC – Higher Dividend Payout Drives Valuation Jump
Access Bank’s FY21 audited results showed significant profit improvements across all revenue lines, culminating in 22% year-on-year gross profit growth to N931 billion, beating our estimate of N868 billion. The impressive rise in profits was the result of a 23% year-on-year increase in interest income to 602 billion naira, which was driven by a 35% year-on-year growth in total assets to 11.7 trillion naira, with a return on assets of 8.6%. Additionally, the bank recorded a 31% year-on-year increase in non-interest income (NIR) to ₦330 billion, driven by net foreign exchange gains of ₦101 billion, a major change from the loss of ₦8 billion on this item in 2020.
On the other hand, while it should be noted that NPLs moderated to 4.0% (FY2020: 4.3%) despite the acquisitions of subsidiaries in Eastern and Southern Africa, the bank reported higher provisions higher than expected of £83 billion, or 32% y/y which management attributes in part to these subsidiaries. Meanwhile, operating expenses grew at a 14% YoY rate to reach ₦371 billion thanks to a 17% YoY increase in AMCON tax and a 32% YoY increase personnel costs, which could also be partly attributed to the bank’s expansion into new markets during the year. Despite this, the bank’s cost/income ratio fell to 58.8% from 63% in 2020 and was the lowest since 2016.
This means that the bank reported FY21 PBT of ₦177 billion, 40% up year-on-year, while PAT increased 51% year-on-year to ₦160 billion (Vetiva: 150 billion), resulting in EPS of ₦4.58 (FY 20: ₦3.01). Management has also proposed a final dividend of ₦0.70/share (FY’20: ₦0.55) resulting in a total dividend payout of ₦1.00/share for 2021, a ratio of 22% (FY’20: ₦0.55) ’20: 27%).
Q4 surge bodes well for 2022 expectations
Reversing the trend of the previous year, the bank’s performance in the fourth quarter bolstered profits for the year, posting £279bn in gross profit, a 15% q/q increase. Although interest income fell 13% q/q to ₦131 billion, the NIR rose 62% q/q on debt recoveries of over ₦39 billion in the last one alone. trimester. Additionally, the bank’s assets grew by 13% in the fourth quarter, with new acquisitions in Botswana and Zambia helping to boost total assets by £1.3 trillion.
However, the bank’s provisions also jumped more than 300% q/q to £44bn, while operating expenses were 21% lower than in the third quarter. This means ACCESS posted 11% q/q growth in PBT to £42bn in Q4 alone, the best Q4 performance in the bank’s history. Given the expansion of the bank’s operations and the significant growth seen in its subsidiaries in Africa and the UK, we expect the bank’s transition to a Holdco structure, which is expected to be completed during the second quarter , will further strengthen earnings and asset growth as subsidiaries are given larger goals and more incentive to extract value from their respective markets.
While management is keen to highlight the long-term potential of many of the markets the bank entered in 2021, such as Botswana and South Africa, we expect further improvements in these and other global markets. the bank’s network in the short and medium term. As such, we forecast FY22 gross profit of ₦1.04 trillion (previous: ₦920 billion), thanks to an improved interest income forecast of ₦688 billion (previous: ₦652 billion). ₦) and an NIR of ₦356 billion (previous: ₦268). billion).
Additional forecasting improvements across all revenue lines
Based on Access Bank’s performance for FY21 and our new expectations for 2022, we have revised our guidance for FY22. Following the earnings improvements above, we expect a cost of risk of 1 .5%, giving a depreciation figure of ₦68 billion (previous: ₦61 billion) as well as an Opex of ₦401 billion (previous: ₦403 billion) at a cost to income ratio of 58 .9%, stable year-on-year. Ultimately, this brings our PBT forecast to ₦211 billion (previous: ₦182 billion), while PAT stands at ₦182 billion (previous: ₦157 billion). This gives a projected EPS of ₦5.06 and DPS of ₦1.10/share (previous: ₦0.99) as well as a ROAE of 19.1% (FY’21: 17.9%).
Paying dividends is key to boosting valuations
The bank’s dividend payout of ₦1.00/share exceeded our expectation of a total dividend of 85 kobo for the year. Although the payout ratio of 22% is slightly lower than the previous year (27%), improved earnings forecasts for the year ahead and beyond have pushed our share valuation higher at ₦14.95 (previous: ₦11.79). However, we note that Access Bank’s dividend payout remains below the peer average of 35%. Applying this average to our scenario analysis yields a total dividend of ₦1.77 for 2022 and a price target of ₦18.99. The stock is currently trading at a 50% discount to our target price and P/E and P/B values of 2.1x and 0.3x respectively, below the peer averages of 3.8x and 0 .5x.
Although reasonable care has been taken in the preparation of this document to ensure the accuracy of the facts stated herein and that the notations,