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Q1’18 RESULTS: Financial highlights of quoted companies that drove bullish trend

Nigerian Stock Exchange

…Access Bank, Total, First Bank in review

By Emeka Anaeto, Business Editor

THE stock market reversed its bearish trend last week and market observers believe a relative stability would be sustained this week. The driver of the stability is obviously, the first quarter 2018 (Q1’18) earnings report of corporate entities which can be described as impressive. Below are the highlights of some of the financial results already received at the Nigerian Stock Exchange as at last weekend.

Access Bank Plc

Gross earnings rose by 18.6% year-on-year (YoY) to N137.5 billion, beating some analysts’ estimate. However, post tax earnings fell by 1.3% YoY to N22.1billion, in-line with analysts’ estimate. Despite the impressive growth in top-line, high interest expense (+ 37.8% YoY) muted its impact on bottom-line and profitability in the period.

Other highlights: Interest income increased sharply by 20.5% YoY and 29.2% QoQ to N95.6 billion despite the declining yield environment. Surprisingly, the growth in interest income was solely driven by higher revenue from loans and advances (+28.6% YoY and 61.3% QoQ), as the bank grew its loan portfolio marginally by 0.3% despite the implementation of the International Financial Reporting Standard, IFRS 9 in the quarter. Discounting the impact of IFRS 9, the bank’s loan portfolio would have grown by 4.2% year-to-date (YtD).

The floor of Stock exchange

Revenue from fees and commission (+34.7% YoY) strongly supported non-interest income growth in the quarter, despite the decline in derivatives income (-8% YoY). Analysts at Cardinal Stone Finance Limited believe this development is positive and if sustained will provide some buffers for the expected decline in derivative income onwards.

Funding cost remains a major bane of Access Bank as interest expenses rose by 37.8% YoY and 59.2% quarter-on-quarter, QoQ, to N50.9 billion. This elevated funding cost kept net interest margins, NIM, depressed at 5.8%, which is one of the lowest amongst its peers (peer average: 7.9%). Analysts believe this line item holds the key to stronger profitability in the near term.

While impairments charges rose by 55.2% YoY, it moderated significantly by 77.1% QoQ to N5.0 billion, given that impairments in Q4’17 (N21.6 billion) was significantly buoyed by the one-off charges taken on the bank’s 9-mobile exposure. Non-performing loans however improved marginally to 4.7% in Q1’18 from 4.8% recorded in Q4’17.

IFRS 9 implementation shaved off N73.4 billion from equity in the quarter – N28.8 billion via regulatory reserves and N44.6 billion via retained earnings. Following the consolidation of Q1’18 earnings, the bank’s equity effectively declined by 11.8% to N454.4 billion. Capital adequacy ratio, however, remains solid at 19.3%, 430 bases points (bps) higher than regulatory minimum.

Total Nigeria Plc

For Total Nigeria Plc, the Q1’18 was not really rosy as revenue declined by 6.0% YoY to N75.6 billion, lagging analysts’ estimate of N80.1 billion (-5.9% deviation). After tax profit fell by 37.5% YoY to N1.7 billion, but this was higher than some analysts estimates.

Other highlights: Although Q1’18 revenue declined by 6.0% YoY to N75.6 billion, this was higher by 13.1% when compared to the preceding quarter largely driven by a 13.8% improvement in petroleum products revenue (83.5% of total revenue). This comes following increased supply of PMS by the NNPC (about 50 million litres of PMS) during the period. It is also notable that Q4’17 was dotted with long periods of fuel scarcity, hence the obvious quarterly growth in revenues. Total’s lubricant business recorded positive turnover growth (+9.7% QoQ) to N12.5 billion in Q1’18, although this was lower than the N12.5 billion recorded in Q1’17.

Total’s gross margin declined by 20bps YoY to 11.0%, largely owing to the fall in turnover. The decline in gross margin was much lower on a quarter-on-quarter basis by 420bps, as cost of sales rose (18.7% QoQ) at a faster pace than revenue to N67.3 billion.

Operating profit margin dipped by 120bps YoY to 4.3%, impacted by 23.3% YoY and 14.1% QoQ spike in distribution and staff costs respectively during the period. Industry observers associate the increase in distribution costs to the poor road network leading up to the pick-up of products at the NNPC jetty in Apapa. But this was marginally higher than 4.0% recorded in the preceding quarter.

Though profit before tax increased by 24.2% QoQ to N2.6 billion, after tax profit declined by 37.5% YoY and 19.1% QoQ to N1.7 billion. The quarterly decline in profit after tax was majorly due to the rise (QoQ) in effective tax expense rate to 36.5% (Q4’17: 2.6%).

First Bank of Nigeria Plc

Gross earnings rose by 2.5% to N597.8 billion, in line with analysts’ estimate of N584.5 billion (+2.3% deviation). After tax earnings increased sharply by 178.8% YoY to N47.8 billion. However, this significantly lagged analysts’ estimate of N65.7 billion (-27.3% deviation), as Q4’17 Profit after tax slumped by 88.1% QoQ to N1.9 billion largely due to higher impairment provisions (+50.2% QoQ) taken in the quarter.

Other highlights: Impairment charges surged by 50.2% QoQ to N52.8 billion. According to management, the marked growth in impairment in the quarter was driven by the provision for 9mobile loans.

The bank’s exposure is about N24 billion. Also, the foreign currency component of the bank’s current non-performing loans, NPLs, further contributed to higher provisions in the quarter as the bank re-valued the FX component of its balance sheet at N331/$ compared to N305/$ in the prior period.

Whilst interest income grew by 15.9% YoY to N469.6 billion in FY’17, it weakened by 8.2% on a quarterly basis to N113.5 billion in Q4’17 as revenue from loans and advances slowed by 18.5% QoQ. Surprisingly, interest expenses climbed by 8.7% in the same quarter, resulting to a decline of 14.5% QoQ in net interest income.

Non-interest income moderated by 27.9% as FX revaluation gains fell by 76.3% YoY to N21.1 billion. However, discounting FX revaluation gains, non-interest income would have improved by 21.7% YoY. On a quarterly basis, non-interest income grew by 23.0% QoQ to N42.8 billion, propelled by FX revaluation gains of N15.5 billion booked in the quarter due to the revaluation of the bank’s books at N331/$

The apathy for credit asset creation persisted as net loans declined by 4.0% to N2.0 trillion. Total asset and net asset however increased by 10.5% and 29.7% to N5.2 trillion and N678.2 billion respectively.

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