Access Holding Plc: An imminent share price surge is inevitable

Access Holding Plc’s share price has been lagging behind its earnings and seems not to reflect its market valuation.

While its earnings have grown on average by 21.39% per year over the past five years, its share price has fallen on average by 2.30% per year.

For example, in the 2017 FY, the bank reported a profit after tax of N60.074 billion compared to N158 billion reported in FY 2021, more than double in less than 5 years. Earnings per share (EPS) has also risen from N3.3 to N4.5 during this period.

But on the flip side, the share price of the bank peaked in 2018; rising to as high as N13.35 on March 1^5th, 2018.  Despite the EPS growth, it is yet to hit that level since then.

More recently, Access Holdings Plc reported its highest gross earnings in 9 years, amounting to N906.9 billion in 9M 2022, representing a 30.85% growth.

• The financial statements show that profit after tax was N137.006 billion in 9M 2022 representing a growth of 12.27% from N122.030 billion a year earlier.
• They also reported an EPS growth of 12.14% year-on-year to N3.88 in 9M 2022, compared to N3.46 a year earlier.
• The bank’s trailing twelve months’ earnings per share is N5.05 per share and higher than the earnings per share reported in the full year of 2021.
• The bank’s offshore investments have continued to pay off; helping in diversifying its specific market risks.

But while earnings grew by 12.27% in the first nine months, the Bank’s share price declined by about 8.6% having opened the year with a share price of N9.30 and ended at N8.50. It is as if, the higher its earnings the lower its valuation.

The future: In a bid to assure shareholders that the past is not a reflection of the future, the bank hosted an investment forum where it outlined its 5-year growth plans.

At the event held on the 17^th of January, Access released to the investing public its 2027 5-year strategy document, projecting a healthy and improved return on equity of 25%-30% by 2027 compared to the 18% in 2021, to be driven by improvements in cost to income ratio (CIR).

• According to the report, the group expects to see its net interest margin rise to >6% from the 4.3% recorded in 2021 FY on an expected increase in lending within the core Bank and growth in LendCo’s business.
• The Holdco’s offshore investments are expected to increase and continue to be used as a tool to diversify and mitigate primary country risk.
• By 2027, Holdco expects the Nigerian subsidiary would be contributing about 52% of revenues compared to the 82% revenue it contributed to group revenue as of Q3 2022.
• PBT contributions from Nigeria Bank are expected to reduce from c.63% (9M’22) to c.33%, while the new verticals are expected to contribute c.19% of the profitability by 2027, while African Subsidiaries will contribute c.20% as our footprint grows across the Continent.

As exciting as this future looks for Access Bank, shareholders will be pondering what it could take for the bank’s current share price to reflect not just the future but the present.

Is it undervalued? At N5.05 EPS (TTM) the bank is trading at a trailing twelve months price-to-earnings ratio of 1.77x, which is below the peer average ratio of 2.4x and the African Banks Industry average ratio of 5.4x, which makes it cheaper and of a good value.

• FBNH which shares a similar EPS trades at around N11 per share.
• Also its low price-to-earnings growth (PEG) ratio of 0.09x, below 1x also is an indication that the stock is undervalued; affirmed also by a price-to-book ratio of 0.31x below 1x.
• The bank’s share price also delivers a dividend yield of 11.2%.  This is notable and higher than the bottom 25% and in the top 25% of dividend payers in the NG Market. The bank has consistently paid dividends in the last 10 years and payments have increased over the past 10 years.
• Nairametrics projects around N6.00, which at a multiple of 1.77x could see the share price valued at N10.62 per share.
• So why is the market still valuing the stock at N8.50?

It is easy to point to its outstanding shares of the company which currently stands at about 35.5 billion units second only to its fellow tier 1 bank FBNH with 35.9 billion units.

• Conventional wisdom among traders suggests, the higher the share volume the more susceptible to price swings at the lower end.
• However, this is not enough to keep the bank’s share price undervalued for this long and in the near future .

At the current price-to-earnings multiple of 1.7x, a share price surge is inevitable for Access Bank.

Note: The writer, Nairametrics, or any of its staff may or may not hold shares in any of the companies under review. This analysis should not be taken as an investment recommendation but merely the opinion of the author(s).