Company Analysis

Access Bank 2020FY: Good Intrinsic Value, Eyes On Better Market Share, Returns

Rating: BUY
Current Market Price: N8.30

Latest Final Dividend: N0.55
LOAN to DEBT Ratio: 55.16%
Year High: N9.75
Year Low: N7.20
Fair Value: N12.38
Equity Analyst:  Tunde Segun Jeariogbe

Introduction

  • This report observed the result presented by Access Bank Plc for the full-year ended 31st December, 2020 and compared same to those for the corresponding year (2019) to establish growth, project expected earnings and valuation analysis, using a combination of previous numbers.
  • A close look at the numbers shows that the bank built its financial indices at an accepted level above those of the comparable year, despite the challenging environment in which most business operated during the year.
  • Although we maintained highly conservative valuation approach, Investdata projects that the bank will achieve higher valuations in years to come.
  • Kindly see below for other analysis:
Sources: Company data, NSE, Investdata Research

Company figures

  • For the year ended 2020, Gross Earnings stood at N764.71 billion, a 14.69% improvement over the N666.75 billion achieved at the end of the 2019 financial year.
  • Interest Income is valued at N489.21 billion, same as 8.87% below the N536.84 billion reported at the end of previous year.
  • Interest Expense was estimated at N226.26 billion, a 12.85% drop from the N259.61 billion reported in the corresponding period of 2019.
  • Net Interest Income was therefore estimated at N262.95 billion, or 5.15% below the N277.22 billion achieved in the prior year.
  • Operating Expenses amounted to N288.98 billion, or 26.71% above the N228.06 billion of the comparable year.
  • Thus, Profit before Tax stood at N125.92 billion, 12.51% above the N111.92 billion posted in its similar period of 2019.
  • After considering Tax Expenses for the year, a total of N106.00 billion was reported as Profit for the Period, 12.71% up from the N94.06 billion posted in preceding full-year.
  • Chiefly enhanced by the Changes in fair value of FVOCI financial instruments, Total Comprehensive Income for the period stood at N168.72 billion, 76.00% improvement over the N95.86 billion achieved at the end of 2019 business session.
Sources: Company data, NSE, Investdata Research
  • Access Bank’s Total Assets Valuation improved by 21.51% to N8.67 trillion, compared to the N7.14 trillion reported in 2019.
  • Total Liabilities equally grew by 21.30%, moving from the previous N6.53 trillion to N7.92 trillion.
  • Net Assets also rose to N751.04 billion, compared to N606.73 billion in the comparable year.
  • Retained Earnings improved by 13.86% to N252.39 billion, as against N221.66 billion at the end of the 2019 business session.
  • Total Deposits mobilized through the year stood at N6.54 trillion, as against the N5.44 trillion posted in the comparable year.
  • Total Loans and Advances during the year stood at N3.61 trillion, higher than the N3.06 trillion of 2019.
Herbert Wigwe, CEO of Access Bank Plc

Dividend Information

  • At the end of the 2020 financial year, Access Bank’s shareholders were rewarded with a final dividend of N0.55 for every unit of Access Bank held.
  • According to the information released through Nigerian Stock Exchange (NSE), the closure date for the said dividend is 16th April, 2021, meaning that the qualification date for payment of the dividend is 15th April, 2021, while the payment is scheduled for 30th April, 2021.
  • The said dividend is same as 18.44% of the total amount earned per share of Access Bank through the 2020 financial year, which in our opinion is a very conservative pay-out ratio.
  • Nevertheless, the N0.55 dividend is only 6.63% of the price of Access Bank’s shares on the floor of the exchange as at the time the result was released to the investing public.
Sources: Company data, NSE, Investdata Research

Financial Strength/Solvency Ratios

  • Just like other financial institutions, Access Bank’s Debt Ratio remained high at 91.35%, mildly above the prior year’s 91.51% estimate. In other words, more debt was used through the period. Note that Total Deposits was added to the Liabilities used in the preceding year.
  • We also ascertained that the Total Liability for the period can replicate Equity 10.56 times, a marginal drop from the 10.77 times replicate estimated of 2019. It is noteworthy that such a high ratio is typical of financial institutions.
  • Total Equity was estimated at 8.65% of the Total Asset Value, mildly above the 8.49% estimated at the end of 2019 financial year.
  • We have estimated a Beta value same as the market Beta for Access Bank Plc shares.
Sources: Company data, NSE, Investdata Research

Profitability Ratios

  • Pre-Tax Margin is estimated at 16.47%, down by 1.91% from the prior year’s 16.79% estimate at the end of 2019.
  • Interest Expense for the quarter is same as 29.59% of the Estimated Gross Earnings; same as a 24.01% reduction from the 2019 estimate of 38.94%.
  • Returns Achieved on Average Equity through the year was estimated as 14.12%, fairly above the 15.50% achieved in 2019.
  • See the table below for detailed profitability ratios and comparison:
Sources: Company data, NSE, Investdata Research

Efficiency Ratios

  • Operating Expenses is estimated at 37.79% of the Gross Earnings for the year, representing a 10.48% growth in efficiency, when compared to the 34.20% estimated in  the previous year.
  • Similarly, Gross Earnings was estimated at 8.81% of Total Assets, a marginal 2.03% drop in efficiency as against estimates for the prior year.
  • Total Loan to Deposit Ratio achieved at the end of the year stood at 55.16%, down from the 56.31% achieved in 2019, a far cry from the 65% statutory minimum prescribed by the Central Bank of Nigeria (CBN), its primary regulator.
Sources: Company data, NSE, Investdata Research

Investment/Valuation Ratios

  • At the end of the 2020 financial year, Access Bank earned N2.98 on each unit of its listed shares, a 12.71% growth over the N2.65 earned in 2019.
  • Also, Total Comprehensive Income per share improved by 76.00% to N4.75, from the N2.70 achieved in 2019.
  • P/E Ratio adjusted down to 2.78x versus 3.21x in the corresponding year.
  • Earnings per Share translated to 35.93% of the share price of Access Bank on the Exchange as of the time the result was made available to the public.
  • The estimated value of each unit of Access Bank’s shares in its book is currently N21.13, which is an appreciable improvement over that of the corresponding year’s estimate.
  • Confirming an academic under-priced status of Access Bank’s share price is the Price to Book Value estimate which stood below unity.
  • See below for details: 
Sources: Company data, NSE, Investdata Research

Valuation

While valuing Access Bank’s shares, we choose a highly conservative method, seeking to present a very secure price to our users. Thus, we have valued each unit of Access Bank at N12.38, clearly below the Book Value but above the current market price of Access Bank on the floor of the exchange as of the time, this report was gathered. Hence, we rated Access Bank a Buy. It is important to understand that we see Access Bank achieving higher valuation in years to come, after fully settling down from all the changes it went through from various acquisitions in recent times.

Sources: Company data, NSE, Investdata Research

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