Investors love banking stocks that beat the market index without getting ahead of its financials or risking sell-off on overvaluation. In this financial analysis, we looked at the new Access bank, short term chart analysis, and basic banking metrics to check if the recent financials support strong price growth.
What we’re looking for?
We will be looking at key areas like:
- Net Interest and Profit After Tax
- Return on Equity
- Customers’ Deposit
- Book Value Per Share
In the bank’s recent result, Access bank reported a significant growth in net interest income to N53b (from N39.6b in the previous first comparable quarter). This was largely boosted by interest on investment securities which grew by 227%.
This growth at the top level, coupled with the net gain of N6b on foreign exchange transaction, were supportive of the 86% growth in profit after tax to N41b.
On the efficiency level, a key metric that tells how the bank is able to manage its operating expenses. Access bank efficiency ratio prints at 54.6%, down from 55.7%. While this is below the industry standard of 60%, the bank needs to cut a chunk of its operating expenses to rank at per with its peer.
Return on Equity, a measure of how the bank utilised shareholder’s fund, prints at 7.1% compared with 4.5% reported in the previous quarter. This represents a 57% growth Q on Q.
Customer deposit from the newly merged entity also grew by 35% to N4.6tr which is a form of cheap money (that comes with lower interest expenses) expected to generate higher earnings from an investment in fixed income market.
The customer deposit to liability ratio, a key measure of how the bank generates cheap money is 79%, a slight increase from 77% reported in Q1 2018. The significance of higher deposit/liability to a bank is that it tends to pay lower interest on savings/term deposit compared to interest on debt instruments like commercial paper, and Eurobond.
Since we can’t ascertain the full year’s earning with the first quarter result, it makes sense to use the net asset valuation approach to estimate the value of the bank’s stock. An asset-based approach identifies a company’s net assets by subtracting liabilities from assets. The asset-based valuation is often adjusted to calculate the net asset value of a company based on the market value of its assets and liabilities.