Access Bank Plc

Access Bank Plc

Company Overview
ACCESS commenced operations on May 11, 1989 about three months after its incorporation as a private limited company. It was converted to a public company in March, 1998 and got listed on the Nigerian Stock Exchange in November of the same year. It is one of the new generation banks that have changed the financial landscape. The merger with Diamond Bank Plc in  March 2019 would boost its retail customer base in line with the bank's effort at growing the retail banking segment.

ACCESS derives over 80% of its gross earnings from Nigeria.  It has presence in other countries of Rwanda, Ghana, Sierra Leone, Zambia, the Gambia, Democratic Republic of Congo, the UK, United Arab Emirates, China, India and Lebanon.

Mrs. Mosun-Belo-Olusoga chairs the board of ACCESS. Mr. Herbert Wigwe holds sway as the Managing Director, having replaced Mr. Aigboje Aig-Imoukhuede who retired in December 2013. Mr. Adeolu Bajomo joined the Board as executive director in January, 2018 while Mrs. Titi Osuntoki resigned from the board in March 2019. The directors own 5.3% of total outstanding shares of ACCESS (2017: 9.6%) while Stanbic Nominees Nigeria Limited holds 16.5% on behalf of various shareholders.

Investment Thesis
With an asset base of NGN5 trillion, ACCESS remains one of the biggest banks in Nigeria. The merger of ACCESS and Diamond Bank Plc would expand its branch network and help grow its retail banking business. Deposits from the retail segment declined by 22.1% while loans granted to this segment decreased by 14.8% in 2018.

Customer deposits have expanded by 13.5% while loans to customers have grown by 21.7% in the past six years. In other words, deposit expansion trails loan expansion. However, gross loans to customer deposits ratio dropped to 81.2% from 91.8%. Shareholders’ wealth and total assets have been growing by 10.1% and 24.1% over the past three years. ACCESS is adequately capitalised.

We expect total debt which stood at NGN639.7 billion at year end 2018 to rise. The company paid an interest of NGN43.1 billion in the year under review (2017: NGN48.3 billion). Total debt formed 130.4% of shareholders' fund and 12.9% of total assets.

We believe that the decision of the management to explore the retail market will drive cost of funds down and impact the bank's net interest margin positively going forward. Revenue from this segment jumped by 45.8% in 2018 compared to -0.4% of 2017.  However, it accounts for only 18% of total revenue and 1.2% of total assets. Its contribution to total Profit Before Tax (PBT) is 6.8%; PBT margin is  7.4%, up from 7% of the preceding period.

Valuation
Book Value Per Share (BVPS) stands at NGN17.0 while Earnings Per Share (EPS) is NGN2.7. ACCESS trades at 2.1 times historical EPS and 0.3 times book value. Our Two-Stage Dividend Discount Model produced a value ranging from NGN9.4 to NGN12.9 per share. An intrinsic value between NGN8.9 and NGN11.1  was  estimated from our Discounted Cash Flow Model.

ACCESS is trading at a hefty discount to our fair value estimate. Therefore, we maintain a buy recommendation.

Financial Overview
Gross earnings gained 15.2% in 2018 when juxtaposed with a 20.4% boost of 2017.  Though it accounted for 18% of total revenue (2017: 14.2%), retail banking recorded the second highest revenue growth of 45.8%; business banking has the highest revenue growth of 133.6%. In spite of a 19.1% growth in interest income, net interest income grew by 6.2% compared to 17.5% of the previous period. This was largely driven by a bigger increase in interest expense (32.6%).

Fee and commission income increase of 9.6% was driven by 29.6% rise in credit related fees and commissions. Operating income leapt by NGN167.9 billion to close at NGN320.9 billion courtesy of NGN96.3 billion net gain on investment securities. Profit Before Tax (PBT) jumped by 32% while Profit After Tax (PAT) added 58%.  Both EPS and BVPS have been increasing at 19.4% and 6.8% respectively (on a 7-year CAGR basis).

Net interest margin of 32.8% represents a 2.8% fall  from what was achieved in the prior year. Pretax profit margin increased by 2.5 percentage points; net profit margin dropped 4.6% to 14.8%. Return on Assets (RoA) shed 59 basis points to close at 1.6%; Return on Equity (RoE) moved to 16% from 17.4%.

Customer deposits have been growing by 15.1% while customers loans have been increasing by 13.3% over the past three years.  Impaired loans were 2.5% of gross loans and the quality of the bank's loan portfolio has not worsened.

ACCESS has a capital adequacy ratio of 20.8% which is 4.8% better than the regulatory requirement of 16%. It is liquid and remains solvent.

Business Risk
ACCESS has a weak economic moat in its industry. Intense competition would exert a downward pressure on earnings owing to the absence of marked product differentiation.

Recommendation: Buy