At the close of trading on June 9, 2024, Access Holdings’ share price stood at N19.35, which is 2% lower than the N19.75 price set for the bank’s ongoing rights issue.
On July 8, the opening day of the rights issue, the share price opened at N19.20, then appreciated by 2% to close at N19.60. However, today, July 9, Access Bank declined by N0.25 to close at N19.35.
The fluctuations in Access Holdings’ share price raised significant concerns among shareholders, who voiced their apprehensions during the group’s “Facts Behind the Issue” presentation at the Nigerian Exchange (NGX).
Why it is an anomaly: Typically, in share offering programs, whether through a rights issue or a public offering, the offer price is set at a discount to the market price to attract investors.
In a rights issue, the discount on the issued shares is generally more substantial than in a public offering. For instance, Fidelity Bank priced its rights issue shares at N9.25, while its public offering shares were priced at N9.75.
Companies typically offer a larger discount on rights issues because they are exclusively available to existing shareholders, making the discount an additional incentive for these shareholders.
Reasons for the price disparity
In Access Holdings’ case, the Chairman of the Group, Aigboje Aig-Imoukhuede, tried to explain the reason behind the departure from the norm, putting forward the strong earnings profile of the bank.
Aig-Imoukhuede noted, “There are certain things I look at when investing in a business or considering an investment. When evaluating a business, if the business’s annual earnings run rate matches the amount I invested, I consider it a strong indicator.”
“For example, analyzing Access Bank’s earnings profile, even without accounting for currency devaluation profits, shows significant earnings potential. If devaluation occurs, the earnings forecast could double or triple.”
“Currently, the analysis shows a potential earnings value of about 17 naira per share, with a trading price of around 19.75 naira per share. This is not a bank that needs further reinvestment to make that money, meaning it won’t seek additional capital that could dilute its earnings.”
He then noted that the recent rights issue was essential to reward long-term investors who have supported the bank through difficult times, as the bank is poised to generate significant profits in the future.
Recall that in FY 2023, Access Holdings Plc hit earnings per share of about N17.23, based on its net income of N619.3 billion. The group’s earnings per share represent a 288% increase from the N4.44 earnings per share posted in 2022.
Using the offer price of N19.75, the price-to-earnings (P/E) ratio of 1.15 for the issued share is notably lower compared to its industry peers.
For instance, FBNH shares have a P/E ratio of 2.62, GTCO shares are at 2.36, UBA shares stand at 1.32, and Zenith Bank shares are at 1.74.
This disparity suggests that Access Bank shares trading in the market with a 1.12 P/E ratio may be significantly undervalued.