ISSN 1597 8842 Vol.1 No. 2 Analyst Report on Access Bank Plc July 2007
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Investing in ACCESS Bank Plc Executive Summary Proshare examined the volumes of data, information, analysis and records available directly and indirectly on the bank as far as it could to access the investment implication of the offer for ordinary shares by the bank. We equally poured through primary data provided by the Nigerian Stock Exchange and the prospectus which were validated with discussions with fund managers and existing investors/stakeholders. The analysis therefore represents our factual examination of data available to evaluate an investment decision in the bank s offer to new and existing investors. We examined the risk and mitigating factors related to the investment and found it applicable to firms operating in the sub-sector of the Nigerian Stock Exchange, save for firm-specific risk related to Access Bank s operations - rapid growth and expansion plans, loans portfolio and credit risk management, and the managements ability to navigate the business of banking in the fiercely competitive market place where benchmarks continue to shift towards regional and global performance indicators. The Nigerian capital market of which the report focuses has experienced consistent growth and baring any unforeseen events, is expected to continue to grow during the period under review; even as we expect necessary corrections to adjust for price movements in the market driven by factors other than fundamentals. We have highlighted certain aspects of the offer which investors might want to note in the Fast Facts on the next page. The report is presented in two broad sections the analysis and the opinion. We encourage your feedback on this report for necessary stock updates and review. Thank you. Yours Sincerely, Board of Analyst 3
1. The Offer Fast Facts Opening Date July 23, 2007 Closing Date August 29, 2007 Authorised Share Capital N10 Billion of 18bn Ord. shares @50k each and 2bn preference shares @50k each Number of Shares on Offer 4.722 bn Ordinary shares @50k each, par value Offer Unit Price N14.90k per share (Payable in full on Application) Units of Sale Minimum 1,000 ordinary shares and multiples of 100 thereafter Method of offer Purpose: The offer proceeds will be applied as follows: Offer for Subscription The purpose of the Offer is to raise capital to fund various initiatives which are designed to help Access Bank Plc achieve its goal of becoming a top-3 player in Nigeria by 2012. Specifically, the proceeds will support the bank s growth objectives which include a retail expansion strategy within Nigeria and the global market place, The allocation is as follows: Utilisation of Offer Proceeds 33% 10% 22% 28% Expansion of Branch Network ATM Roll-Out, Call Centres & E-Banking Equity Investment in Subsidiaries Increase in Working Capital Expansion/Upgrade of IT 7% Market Cap. @ (Pre & Post Offer) Preferential Allotment Status Conversion of shares into GDR N103,974,596,843.80 N174,329,999,880.80 2,200,000,000 shares, representing 46.59% of the Offer, may be offered to identified foreign and local institutional and individual investors. All the Shares to be issued shall rank pari passu in all respects with the issued ordinary shares of the Bank except that it does not qualify for dividend or bonus for the year ended March 2007. Access Bank commenced the process of opening a Global Depository Receipt (GDR) Programme in July 2007 wherein the Bank of New York will act as the Global Depository. In the event that the approvals are obtained, Foreign Institutional Investors and other High Net Worth Individuals, who have subscribed to the Offer, may convert their allotted shares to GDRs subject to the SEC s approval. 4
Group Structure Access Bank Plc wholly owns a subsidiary in Gambia and has both majority and minority interests in eight (8) other companies/businesses as illustrated below: Over Subscription/ Supplementary Allotment Despatch of Share certificate Indebtedness Claims & Litigation Underwriting Additional information Prospectus Registrars The Directors of the Bank have been mandated subject to the SEC s approval to capitalise excess subscription up to the extent of its authorised and unissued share capital. Share certificate in respect of shares allotted will be sent through registered post not later than 15 working days from the day of allotment. Investors can also receive their certificates electronically by indicating the name of the stockbroker and personal CSCS account number on the application form. As at the date of the Prospectus, Access Bank had no outstanding debentures, mortgages, loans, charges or similar indebtedness other than those incurred in the ordinary course of business. However Access Bank had contingent liabilities of approximately N80 billion as at March 31, 2007 arising from Acceptances, Guarantees and Letter of Credit related contingencies The Bank in its ordinary course of business is presently involved in 149 cases. The Solicitors to the Bank are of the opinion that the contingent liability arising from the cases pending against the Bank is not likely to exceed an estimate of N545 million. The list of claims and litigation against and for the Bank is available for inspection at the offices of the Joint Issuing Houses. N57, 500,000,034.50 representing 81.73% of the Offer will be underwritten on a firm basis, in accordance with the SEC s requirements. Convertible Loan Agreement The Bank has existing Convertible Loan Agreements with the International Finance Corporation ( IFC ), Belgian Investment Company for Developing Countries ( BIO ) and the Finnish Fund for Industrial Corporation ( FinnFund ) for US$15m, US$3m and US$5m respectively. Under the terms of the agreements with all three institutions, 25% of the loan amounts are convertible to ordinary shares in Access Bank Plc. Bond Issue Last year the Bank issued a N13.5 Billion Naira Denominated Redeemable Convertible Bond which was listed on the Nigerian Stock Exchange on June 19, 2007. Under the Trust Deed, 25% of the Bond principal is convertible to ordinary shares in Access bank Plc. Additional information can be obtained at http://www.accessbankplc.com/ Wema Registrars Limited, 2nd Floor, AG Leventis Building, 42/43 Marina, Lagos 5
2. The Investment Analysis OUTLINE The Analysis Fundamental Analysis...07 Management Revenue and Profitability. Earnings per Share (EPS) Asset Quality Price-Earnings (PE) v Value-earnings (VE) Return on Common Equity (ROE) Return on Total Assets (ROA) Technical Analysis...15 Most Recent 19 Months Stock Performance of Access Bank Plc. Shares. Impact of the share reconstruction on Access Bank Plc. Investors shares holdings. The Opinion Contact Us 6
3. Fundamental Analysis The Objective: To review the stock valuation by examining the company's financials and operations, especially earnings, growth potential, assets, debt, management, products, and competition through financial ratios arrived at by studying the balance sheet and profit & loss account over a number of years. This analysis is more effective in fulfilling long term growth objectives of shares, rather than their short term price fluctuations. In the Nigerian Stock Market, this has traditionally been the key focus of most players and it remains a guiding beacon as to what could possible happen to a stock. Our approach to fundamental analysis therefore takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data, which are reviewed in the second part of this report. Management The company operates under a group structure managed by a 13-man Board of Directors comprising of professionals with varied backgrounds applicable to the businesses they have under management. The Chairman of the Board, Mr. Gbenga Oyebode, MFR, has been leading the board since March 21, 2002 and continues to define the stability associated with the Board, especially its ability to successfully manage the business turnaround and acquisitions during the consolidation phase. The Group Managing Director/CEO, Mr. Aigboje Aig-Imoukhuede heads a management team considered to be very stable and associated with dynamic engagements with stakeholders and highly innovative products and services. The partnership with Mr. Herbert Wigwe, as Deputy Managing Director, provides the bank with a complimentary approach to succession planning and operational cohesion. The banks Non-Executive Directors are: Cosmas M. Maduka (Director Coscharis Group & Spring Bank Plc), Oritsedere Samuel Otubu (Director Senforce Insurance Brokers & Starco Insurance Co. Ltd), Isa Dutse Mahmoud, T.B. Folawiyo (Director Folawiyo Group, MTN Nigeria and Ecobank Plc), Emmanuel Chiejina (Director TotalFinaElf), Adewunmi Desalu (Director Pennisula Asset Management & Investment Co and Radmed Diagnostics Ltd). 7
The Executive Directors are: Mr. Taukeme Edwin Koroye, Mr. Okey Nwuke, Mr. Obeahon Ohiwerei and Mr. Ebenezer Olufowose (who recently joined the bank). Kindly find below the statement of shareholding of the Board members in the bank: Revenue and Profitability For the most recent five fiscal years ended March 31, 2007, Access Bank has experienced continual earnings and profit growth as reflected in the graph below. Gross earnings for the fiscal year ended March 31, 2006 increased by $14.6 billion, or 110% compared to the prior fiscal year ended March 31, 2006. Comparatively profit before taxes (PBT) increased by N6.9 \billion, or 619% relative to the prior fiscal year. For the three (3) years prior to the FYE 2007, gross earnings increased by 77%, 36%, and 25% respectively, while the change in PBT for the aforementioned three (3) year period were 46.5%, -21%, and 17.4% respectively. GROSS EARNINGS VERSUS PBT GROSS EARNINGS IN BILL 70 60 50 40 30 20 10 20 18 16 14 12 10 8 6 4 2 PBT 0 FYE 2003 2004 2005 2006 2007 2008 FISCAL YEAR ENDS FYE Gross Earnings PBT 0 8
Management attributes the growth in gross earning and PBT to the following: Increase in branch network which consequently increased Access Bank s customer base resulting in deposit and risk assets volume growth over 80%. This generated a huge growth in interest income and fees/commission in 2007. Expansion of operation into core business areas like Telecom, Oil and Gas, Global Trade and other areas which positively affected deposit and risk assets levels. New trading avenues just introduced by CBN in Treasury and Forex related areas e.g. bonding trade, generated over N500 million for the bank in the Financial Year Ended March 31, 2007. This new business did not exist in fiscal year 2006. Management projects that for the next three (3) fiscal years (2008, 2009, & 2010) earnings will grow by 138%, 41%, and 27% respectively while PBT will grow by 117%, 36.8%, and 29.8% respectively. Historical gross earnings versus profit before tax (PBT) through FYE 2007 adjusted for management s projections through FYE 2010 are highlighted in the graph below. GROSS EARNINGS VERSUS PBT ADJUSTED FOR MANAGEMENT'S FORECAST GROSS EARNINGS IN BILL 140 120 100 80 60 40 20 0 FYE 2003 2004 2005 2006 2007 2008 2009 2010 FISCAL YEAR ENDS FYE Gross Earnings PBT 20 18 16 14 12 10 8 6 4 2 0 PBT IN BILLIO Earnings per Share Based on the financial statements for the most recent fiscal year ended March 31, 2007, Access Bank s EPS was 0.87k which appears below the industry average of N1.35k. A peer analysis of the industry EPS along the lines of peer groupings (Tier 1 and Tier 2) however presents a better appreciation of where the bank ranks (see table below). The bank has an EPS higher than that of two strong banks in the Tier 1 grouping while its EPS is higher than all the banks in the Tier 2 grouping. 9
Price Fundamentals & Peer Comparison PAT Number of Shares in IssuEPS Current Mkt P/E Offer Price P/E - Current Offers SHF NAV per Share P/Book P/Book - Current Offe N'Million Naira Naira N'Million Naira N'Million Naira Tier I Banks UBA 11,500.00 8,472,000,000 1.35741 45.5 33.51965217 35 25.78434783 47,621.00 5.62098678 8.094664119 6.226664707 Zenith 11,488.00 9,265,524,300 1.23987 58.99 47.57775753 N/A N/A 93,800.67 10.12362193 5.826965922 N/A First bank (Public) 16,053.00 10,477,338,776 1.53216 40.4 26.36793662 33 21.53816605 58,996.00 5.630819167 7.174799758 5.860603763 First Bank (Rights) 16,053.00 10,477,338,777 1.53216 40.4 26.36793662 31 20.23282266 58,996.00 5.630819167 7.174799759 5.505415657 Union Bank 10,036.00 9,649,804,481 1.04002 41.04 39.46073893 N/A N/A 100,500.00 10.41471879 3.940576875 N/A Oceanic Bank 9,558.83 11,642,006,625 0.82106 30.4 37.02514591 16.5 20.09588511 37,670.00 3.235696492 9.395195153 5.09936579 Intercontinental Bank 8,595.92 16,455,381,530 0.52238 27.15 51.97392025 N/A N/A 131,830.19 8.011372374 3.388932474 N/A GT Bank 13,194.00 8,000,000,000 1.64925 35.73 21.66439291 N/A N/A 47,324.00 5.9155 6.040064238 N/A Average 12,059.84 10,554,924,311 1.21179 19.32 35.49468512 28.875 21.91280541 72,092.23 6.822941837 6.379499787 5.673012479 Access Bank 6,083.00 6,978,160,862 0.87172 19.32 22.16308858 14.9 17.09265113 28,385.00 4.067690694 4.749623669 3.663012043 Tier II Banks Diamond Bank 4,314.00 7,603,602,715 0.56736 18.99 33.47065729 N/A N/A 34,968.00 4.598872575 4.129272923 N/A Bank PHB 2,400.00 6,435,024,933 0.37296 28.5 76.41592108 N/A N/A 27,000.00 4.195787939 6.792526319 N/A Afribank 2,483.00 5,108,433,332 0.48606 11.51 23.68025278 N/A N/A 25,000.00 4.893868311 2.351922706 N/A IBTC 4,124.00 12,500,000,000 0.32992 11 33.3414161 N/A N/A 31,515.00 2.5212 4.363001745 N/A FCMB 3,054.00 9,549,763,475 0.3198 14.5 45.34105121 N/A N/A 28,800.00 3.015781498 4.808040638 N/A Fidelity Bank 3,162.00 9,549,763,475 0.33111 9.49 28.66137109 N/A N/A 25,597.00 2.680380521 3.54054207 N/A Average 3,256.17 8,457,764,655 0.40 15.67 40.15 N/A N/A 28,813.33 3.65098181 4.33 N/A Average (Tier I & Tier I 7,658.01 9,506,344,483 0.8065 17.4925 37.8232 28.8750 50,452.78 5.236962 5.355192 5.673012479 Access Bank 6,083.00 6,978,160,862 0.87172 19.32 22.16308858 14.9 17.09265113 28,385.00 4.067690694 4.749623669 3.663012043 10
As indicated in the graph below, the current EPS represents a year over year improvement compared to the most recent four fiscal years. The improvement in the EPS for the current fiscal year compared to 2006 fiscal year resulted primarily from the N5, 346 billion, or 725% growth in NPT and the impact of the 1 for 2 share reconstruction exercise. If the share reconstruction strategy was not implemented, the current year EPS would have been 0.40k. EPS COMPARATIVE GRAPH 100.00 90.00 80.00 87.10k 70.00 60.00 50.00 EPS 40.00 30.00 20.00 10.00-20.6k 21.2k 5.3k 6.2k 2003 2004 2005 2006 2007 Management estimates that EPS will grow to 1.12, 1.51, and 1.95 respectively for the next three fiscal years through 2010. If the bank had not implemented the share reconstruction, the projected EPS inclusive of the shares from the proposed secondary offering would have been 0.83, 1.15, and 1.50 respectively for the next three years (2008, 2009, and 2010). Hypothetical EPS With and With Out Reconstruction 3.00 2.50 Fiscal Year Ends 2.00 1.50 1.00 0.87 1.12 0.83 1.51 1.15 1.95 1.50 0.50 0.40-1 2 3 4 EPS EPS w/o reconstruction EPS with reconstruction 11
The comparative chart reflecting projected EPS with the reconstruction and EPS without the reconstruction as highlighted in the graph above indicates that the bank s EPS with the impact of the share reconstruction is 53% higher than without the reconstruction over four years through 2010. Asset Quality The Bank has experienced a significant growth in its assets base in the last two (2) years. In 2007, the asset base grew to N329 billion, an increase of N154 billion, or 88% compared to N175 billion in 2006. Additionally, compared to the FY 2005, total assets have increased 292%. The growth in the asset base resulted primarily from increased scale economies and advantages from the merger with Capital Bank and Marine International Bank in 2005. The growth in total assets pre and post merger (FYE March 2007 versus FYE March 2005) were noted primarily in cash & short term funds totalling N147 billion (1336%), Short-term investments of N31 billion (388%), loans & advances of N108 billion (575%), and fixed assets of N4 billion (100%). Year Over Year Total Assets Growth 350.00 300.00 2007 Asset Values in Billions 250.00 200.00 150.00 100.00 2006 EPS 50.00-2005 2003 2004 2003 2004 2005 2006 2007 Fiscal Year Ends Price-Earnings (PE) versus Value-Earnings Ratio (VE) The P/E ratio indicates a price investors are willing to pay per one Naira of reported profits. It is a ratio that is helpful in determining valuation risk as regards to whether a company s stock price is overvalued. 12
Based on the recent fiscal year financial statements and the bank s N19.32 share price, the current PE ratio for Access Bank is 21.6, which compares favourably to 30.6, the average P/E for the banking industry. The P/E ratio of Access Bank compared to the majority of the Banks in Nigeria is highlighted below. P/E Ratio Comparison 50.0 40.0 30.0 P/E Ratios 20.0 10.0 Accessbank Afribank Diamond Bank Ecobank ETI FCMB Fidelity Bank First Bank GTBank IBTC Chartered Intercontinental Oceanic Bank Platinum Habib Skye Bank UBA Union Bank To determine whether the current price is over valued, we compared the stock price to the value to earnings (V/E) ratio and the PEG. Based on the results of the most recent fiscal year end financial statements, the V/E ratio is 22.16 and the PEG is 0.36 using an average forward growth rate of 61 percent based on an average of the bank s projected earning growth rate of 117.5%, 38.8%, and 29.8% respectively for the three fiscal periods through 2010. The rule of thumb for PEG is that the stock prices for companies with PEG ratios less than one (1) are low relative to the company s future growth. Therefore since the V/E ratio is comparable to the P/E, and the PEG is less than one, it infers that Access Bank current share price is reasonable relative to the bank s projected future growth rates. Return on Common Equity (ROE) ROE is an important accounting ratio used by investors to determine their return on investment. Stockholders invest to get a return on their money, and ROE conveys how well investors are doing from an accounting perspective. The ROE for Access Bank Plc based on the most recent fiscal year financial statements is 21.5%, which is above the industry average of 16.68%. 13
The analysis revealed that Access Bank s ROE is in the median quartile relative to other domestic banks. The comparative ROE of most of the major banks in Nigeria are highlighted in the graph below. Comparison of ROE ROE Ratios 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 21.1% 9.0% 7.6% 17.9% 13.8% 11.3% 12.5% 27.9% 27.9% 28.4% 25.4% 23.9% 2.1% 12.2% 8.4% 10.8% 10.5% 12.2% Accessbank Afribank Diamond Bank Ecobank ETI FCMB Fidelity Bank First Bank First Inland GTBank IBTC Chartered Intercontinental Oceanic Bank Platinum Habib UBA Union Bank Wema Bank Zenith Bank Banks ROE Return on Total Assets (ROA) The ROA indicates the overall effectiveness of an institution to generate profits from total investment in assets independent of the financing of those assets. Access Bank ROA based on the latest fiscal year ended March 31, 2007 was 1.9%. With the exception of Oceanic Bank with a ROA of 2.6%, FBN with a ROA of 2.8%, and Intercontinental Bank with a ROA of 2.2%, Access Bank s ROA is comparable to the ROA of other major banks as indicated in the graph below: Comparative ROA 3 2.5 2 1.5 ROA 1 0.5 0 UBA UBN Diamond Access Zenith Intercontinenta Oceanic FBN 14
4. Technical Analysis The Objective: To review the stock valuation by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future (usually short-term) market trends. Unlike fundamental analysis, the intrinsic value of the stock is not part of the consideration here. More and more investors are beginning to appreciate and rely on technical analysis in reviewing stocks on the Nigerian Stock Exchange because of the proven fact that market psychology influences trading in a way that enables predicting when a stock will rise or fall. For that reason, technical analysis charts, produced by our technical analysts, InvestIQ, and published on the Proshare website are market timed based and predicated on the belief that technical analysis can be applied just as easily to the market as a whole as to an individual stock. To this effect, we developed a quantitative measure of price action using a unique and practical method of easily predicting the buying and selling pressure on individual stocks as illustrated in the subsequent findings. Most Recent 19 Months Stock Performance of Access Bank Shares For the twelve (12) months (October 31, 2005 through October 25, 2006) prior to the implementation and completion of the share reconstruction exercise, the bank s stock price moved in a very tight trading range vacillating between N2.31 and N3.59k (See graph below). DAILY CLOSING PRICES - PRE-RECONSTRUCTION FOR ACCESS BANK 5.0 4.5 Daily Closing Pr 4.0 3.5 3.0 DCP 2.5 2.0 10/31/05 11/30/05 12/31/05 1/31/06 2/28/06 3/31/06 4/30/06 5/31/06 6/30/06 7/31/06 8/31/06 9/30/06 15
The stock price was unable to experience any upward trend due primarily to the high level of outstanding shares. Pre-reconstruction, Access bank had 13.95 billion shares outstanding. Management of the bank represented that the high level of outstanding shares resulted from the acquisitions of Capital Bank Limited and Marina International Bank in 2005 to meet the CBN N25 billion Naira capital requirements. Prior to the acquisition of Capital Bank and Marina International Bank, Access bank had approximately 8 billion shares outstanding. The acquisition contributed 4.2 billion shares to the outstanding shares of the bank. The large number of outstanding shares affected the earning capacity (EPS) of the bank and the stock valuation. Therefore, it became necessary for the bank to implement a share reconstruction strategy. Upon the approval of the SEC and NSE, the bank implemented a 1 for 2 reverse split on October 26, 2006. The reconstruction reduced the number of shares from 13.95 billion to 6.975 billion and the stock price was adjusted to N5.98k from N2.98k, the pre-reconstruction price. After the completion of the reconstruction on October 25 2006, the stock gained only N1.42k (23.7%) through November 11, 2006, but remained in a tight trading range for the next ten weeks. Subsequently on January 23, 2007, the stock began to experience a slight upward movement in anticipation of the results of the third quarter earnings. In February 2007, after the bank reported an 86.2% and a 90% growth respectively in earnings and net profit for the nine (9) months ended December 31, 2006 relative to the prior like period; the stock began to move up significantly accompanied by large volume. Reviewing the performance of the stock from October 26, 2006 (the effective date of the reconstruction) through May 18, 2007 (the effective date of the suspension by NSE for the secondary offering), the stock gained N13.34, or 223.1%. (N19.32k less 5.98k). However, from the point of its breakout N7.93 on February 5, 2007, the stock gained N11.93k or 143.6% through May 18, 2007. (See graph below) DAILY CLOSING STOCK PRICE - POST RECONSTRUCTION FOR ACCESS BANK 18 Daily Closing Pri 15 12 9 6 DCP 3 10/25/06 11/25/06 12/25/06 1/25/07 2/25/07 3/25/07 4/25/07 16
Impact of the Share Reconstruction on Access Bank Plc Investors Share Holdings (Hypothetical Illustration) Pre-reconstruction in October 2006, Access Bank had approximately 13.96 billion shares outstanding and the stock was trading at approximately N3.00k. Upon completion of the 1 for 2 share reconstruction, the total number of outstanding shares decreased to $6.98 billion at an adjusted post reconstruction price of N5.98k. To illustrate, an investor with 10,000 shares pre-construction, had their holdings adjusted to 5,000 shares, but at exactly the same valuation (See schedule below). Pre-Reconstruction Post Reconstruction Total # of Shares 10000 5000 Share Price 3 6 Total in Naira 30,000.00 30,000.00 The share reconstruction and the subsequent value of investors shares have been confusing to many investors, because the impact of the reverse split on investor s holdings was not properly explained. Majority of Access Bank s investors are unhappy about the reverse split and the run up in price prior to the announcement of the secondary offering. However comparatively, it appears that the share prices of other banks that recently completed their secondary offerings surged shortly before and after the announcement of their intentions to raise new funds from the capital markets. The surge in the prices of these shares might have been an intentional mop up by the institutions, or by smart investors buying shares ahead of the offering to enable them sell into post offering up swing. However, a review of the value of investors portfolio post reconstruction through the technical suspension by NSE in the trading of Access Bank shares on May 18, 2007, indicate that investors who held on to their shares post reconstruction experienced a significant appreciation in the value of their portfolio. ILLUSTRATION: An investor with 10,000 shares pre-split at N3 paid N30, 000 (10,000 x 3 = N30, 000) originally for the shares. After the 1 for 2 reverse split, the investor received 5,000 share at N6 still valued at N30, 000 (5,000 shares x N6 = 30,000). If the investor did not sell the 5,000 shares received from the split, the shares are worth N96, 640, a gain of N66, 600 or 222% as of May 18, 2007. Even at the discounted offering price of N14.90, the portfolio gain is N44, 500 or 148.3% post reconstruction as indicated in the schedule on the next page: 17
Post Reconstruction Post Reconstruction Post Reconstruction October 25, 2006 May 18, 2007 Offer Price Total # of Shares 5,000 5,000 5,000 Share Price 6 19.32 14.9 Total Value of Portfolio 30,000 96,600 74,500 Change in Portfolio Value 66,600 44,500 Percent Gain 222.0% 148.3% Additionally, some investors are unhappy that for 3 years prior to the most recent fiscal quarter, Access Bank Plc. did not pay any dividend. Enquiries by us suggest that the bank was unable to pay dividends last year because of an NSE rule that prevents companies with Goodwill on their books from paying dividends. Further, it appears that the bank s management appears content in the belief that the appreciation in the stock price should be a relief to investors that are unhappy about the non-payment of dividends. The share reconstruction was thus, a necessary intervention deployed by the bank to enhance shareholder value. Though this was not peculiar to the bank; it has helped it create value for the investor (see below). Analysis of Returns on Access Bank Plc Shares Year Dividend Paid/Share Bonus Share Holding Share Holding after Bonus 2004/2005 0.000 0 32,500,000.00 32,500,000.00 2004/2005 0.000 1 for 7 32,500,000.00 37,142,857.14 2005/2006 2006/2007 Purchase price in 2004 N2.90k Total Dividend earned in 2004/2005 0.00 Initial Amount Invested in 2004 94,250,000.00 Less Total Dividend Rec'd to Date 0 94,250,000.00 Current Price of Access Bank Shares after bonus@ N2.93 Post Bonus Value of Total Shares 108,828,571.43 Capital Gain 14,578,571.43 0.15 Units Price Cost 2001/2002 Number of units 1,000,000.00 1.00 1,000,000.00 2002/2003 Bonus ( 1 for 9) 111,111.11 Total numbers of shares 1,111,111.11 Dividend 50,000.00 2003/2004 Bonus (1 for 3) 370,370.37 Total numbers of shares 1,481,481.48 Dividend 111,111.11 2004/2005 Bonus (1 for 7) 211,640.21 Total numbers of shares 1,693,121.69 2005/2006 NIL IQ 2006/2007 Share reconstruction (2 for 1) 846,560.85 Calculation Current price 19.32 Current Market Value 16,355,555.56 Cost 1,000,000.00 Dividend 161,111.11 Net Cost 838,888.89 GROSS YIELD 1850% 18
5. The Analyst Opinion The shares of Access Bank are priced at N14.90 for the secondary offering representing a discount of N4.42k, or 22.9% from it closing price of N19.32 (i.e., price at which NSE halted trading in the stock). Prior to the technical suspension stock by NSE for the secondary offering, the share price was above its 10 day, 20 day, and 50 day cumulative simple moving averages (CSMA) of N18.95k, N16.37k, and N14.42k respectively. The offering price of N14.90 is below the 10 day and 20 day CSMA, but above the 50 day CSMA of N14.42k. Although this stock is being offered at N14.90k, recent history of other bank stocks that just concluded their secondary offering indicates that Access Bank stock price is likely to resume trading at or above the pre-suspension price of N19.32k, not at the offering price. Technically, since the stock will resume trading above the 50 day SMA, a major support, the stock is not likely to break below this price. Previously N15.01k was a major support, but the stock is being offered at N14.90, as a result N15 has become an overhead resistance. However, we believe that this price will not be a major resistance since the resistance is too close to the offer price. Stock Value We calculated the actual value of the stock at N23.52 using the current stock price (N19.32) via constant growth model. To determine the value we used the formula highlighted below: Stock Price = Dividends (Div) / (Expected Return (R) - Dividend Growth Rate (G) Expected Rate of Return The expected rate of return which is also the Discount Rate (R) = (Dividends (Div) / Stock Price (P0)) + Dividend Growth Rate (G). Utilizing this formula, the expected rate of return was determined to be 13.1%. Dividend Growth Rate The Dividend growth rate is equivalent to (Plowback x return on equity) Where: Plowback Ratio = 1 - Payout Ratio, and Payout Ratio = Dividends Paid / Earnings per Share, and Return on Equity = Earnings per Share / Book Equity per Share Based on this formula using a dividend payout ratio of 45.89%, and a return on equity of 21.21%, we calculated the dividend growth rate to be 11.4%. Stock Price Substituting for the stock price 0.4 13.1% - 11.4% = N23.52k 19
In consideration of the calculated stock price relative to the offer price, the stock price for Access Bank does not seem to be over valued. Although the offer price is only N8.62, or 57.9% removed from our calculated actual stock value of N23.52k, We believe investors should watch the price movement, and place less emphasis on the projected stock value. The future price movement of Access Bank stock will depend primarily on management s ability to create shareholders value through increased profitability and by continuing to implement the right growth strategies. In our opinion, the stock has all the signs of yielding a positive return on investment (short and long term). Further, using Fibonacci, the price targets below are the exit points investors should consider as the price of the stock when it resumes trading. Fibonnaci Target First Target - 23.7% Price 19.73 % Gain 32% Second Target - 38.2% 20.83 40% Target Third 50% 22.19 49% Fourth Target - 61.8% 26.23 76% (Please note that the Fibonacci targets were calculated based on the stock pullback price of N15.01k) The bank has continued to create value for the stock and it is expected that the groundwork for continued growth laid by the bank will be sustained. It is our hope that the information and analysis contained herein would provide the basis for an informed decision on the investment offer/option. IQ 20
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