- Access Bank posted a pre-tax earnings growth of 20% in its recently released 9 months result
- The bank has pre-tax profits as increased in the first 3 quarters of the year
- The bank’s P.E ratio is much lower than GT Bank and Zenith Bank
- We estimate the company’s value using a combination of P.E ratio and dividend yield
- Our buy, sell or hold decision is based on short to medium term investment horizon.
Access Bank released its 2014 9 months results showing an impressive 20% rise in pre-tax profits to N42billion. This follows a remarkable growth in Net Interest Income, operating income, operating profit and just about any other positives you want to see in terms of growth in a results.
Earnings per share is currently N1.54 in the first 9 months of this year compared to N1.64 for the full year of 2012. This has been a year of renaissance for the bank after an indifferent 2013 which saw profits down by 16% year on year. The bank has posted a profitability growth in three straight quarters already and this has squarely put the bank in my radar. This must be the Wigwe effect.
Rights Issue Effect
I get the feeling the decision to release this result earlier on is not unconnected with the proposed rights issue the bank is set to embark on. After they muddled up the announcement of the rights issue the share price dropped from a month high N9.80 to N8.9 which it closed yesterday. It is my view that the share price will surely be on the uptick today. That is what the bank wants and they will throw in all the resources they are able to muster to push the share price up. So, how does one benefit from all this. Firstly the rights issue
The bank is likely to announce a date for a rights issue sometime this month and on the average, right issues are typically priced lower than the current market price. If we then assume this is just a rights issue then only those who own the shares before the closure date will qualify to buy. Deciding whether to buy or not then has to be affected by the rights issue and the theoretical ex rights price which we currently can’t estimate.
At N9 per share Access Bank is trading at a trailing twelve months P.E ratio of 5.5x and a forward P.E of about 4.6x. This squarely puts the stock in the cheap territory. Stanbic IBTC which has also churned out very good growth numbers this year has a P.E ratio of 17x, Zenith has 8.1x and GTB 9x with the duo posting relatively flat earnings this year.
Access Bank pays dividend twice a year and back in April it paid dividend of 35kobo per share and at the time the share price was N8.22 which is a dividend yield of 4.2%, if you bought the shares just before the closure date on April 16 2014. It paid another interim dividend of 25kobo again in September 19 and if you bought it just before the closure date (sept 17) at a price of N9.59 you get a dividend yield of 2.6%. So basically Access Bank has paid out 60kobo this year and at an average price of N9 it gives us a gross dividend yield of 6.6%.
A 6.6% dividend yield is above the average 5% we see in the market these days however, with the rights issue taking place it is quite unlikely that dividend per share will increase for one major reason. A rights issue introduces new share to the current outstanding shares which will dilute whatever earnings they obtain at least in the near term. So if we take a worst case scenario and suggest dividend yield remains the same at 35kobo come April, then a price of N9 per share today puts the yield at 3.8% which is lower than the 4.2% it did this year and 5.25% GT Bank returned this year. But at 5% GT Bank dividend yield was a blast so maybe that is a high standard to use.
So I will work out three scenarios based on projected dividend per share.
Based on the above,if the bank pays a dividend of 40kobo per share next year the price at a 4% yield will likely be N10 per share. and if it is 30kobo per share you get N7.5 per share.
It is a bit difficult estimating a value just before the right issue is announced. However, my valuation is based on the company’s current numbers as that should also be taken into consideration even if you are to exercise your rights.
Buying Access Bank at the current price of N9 per share depends on your investment horizon. The bank looks on course to solidify its footing as a tear 1 bank and I do believe they will do really well in the later part of 2015 and early 2016. It also has strong fundamentals relative to its peers and has an MD with a renewed focus for the bank. So, a price below N10 looks good if you are looking to hold for at least 2 years.
If you are looking at capital appreciation within the next 6 months then there is a likely upside I see based on the assumptions that the P.E ratio is currently low. GT Bank has a P.E of 9x and Zenith 8.1x. Post rights issue one will expect the market to up its earnings multiple to at least 7x based on its better earnings growth. A 7x multiple portends a value of N12.25 if it ends the year at an earnings per share of N1.75 (which I project). Access Bank was N12 back in July last year.
Opinion: Buy short and longterm