Access Bank released its 2015 Half Year results showing pre-tax profits rose 44% to N39 billion. Earnings per share also rose 40% to N1.35. This results follows a strong first quarter where it posted a 17.5% rise to N13.6 billion.
Despite this result Access Bank share price remained low at N4.27 per share. The share price has now dropped a remarkable 50% in the last one year. It has also lost 32% this year alone. Earlier this week the share price closed at N4.07 its lowest this year.
So with all the negatives and positives, is Access Bank cheap or expensive?
Access Bank declared an interim dividend of 25 kobo per share following the release of its most recent results. This in terms of returns comes to 5.85% dividend yield. To understand how attractive this yield is, GTB and Zenith also this week declared interim dividend of 25 kobo and both stocks have their share price at N22 and N15.8 respectively (compared to Access N4.2).
Price Earnings Ratio
Access Bank as at today has a price earnings ratio of 1.94x based on its 2014 EPS of N2.2. To understand what this means, Access Bank is currently valued at a twice its 2014 earnings per share. Compare that to GTB that is trading at 5.8x or Zenith at N4.79. The likes of Nestle (albeit different industry) is trading at 36x earnings per share.
It is important to note though that Access Bank will be adding about 6billion shares (from its rights issue) to its current outstanding shares of 22.8 billion units taking it up to 29billion shares. Thus the current earnings per share of N1.35 is in essence effectively 87 kobo per share. Annualising that figure gives us an estimated EPS of N1.74, 21% lower than the N2.2 it posted in 2014.
Despite this Access Bank projected P/E ratio 2.4x still relatively cheap when compared to its peers.
Price to book ratio
At a market value of just N97.7 billion the company is valued at just 30% of its Net Assets of over N300 billion. This means the market values every N1 of equity in Access Bank at 30 kobo.
Access Bank also has retained earnings (profits it has saved over the years) of N56 billion which is more than half the current market value of N97 billion.
Whilst the valuation techniques above suggest Access Bank is undervalued the market doesn’t currently feel that way. The banking industry in general has been under significant pressure as investors dump stocks due to economic uncertainty in Nigeria and around the world. Whilst buying it now maybe a bargain it is important to note that an immediate upside may be far fetched.