Oge
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
- Efficiency
- 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.
As of this update, Access bank reported a total asset of N6.4tr while total liabilities were N5.8tr. If you subtract the liabilities from the bank’s asset, you have a net asset or shareholder’s fund of N568b. The weighted average number of ordinary shares as at when the result was published stood at 29.6.
Going by these figures, the book value per share of Access is N19.1.
Interestingly, Ecobank’s shareholder’s equity as reported in FY 2018 was N559b with an estimated 30.9 billion ordinary shares which translates to a book value of N18.
While I can’t jump into the conclusion and project Access shares price rise to N19.1, I believe the bank’ stock has the potential to trade close to N9-N10 on the back of a minimum 2019 FYE EPS of N3.3 supported by initial 80% jump in Q1 EPS to N1.39 (from 77k in 2018).
Technical Analysis
Let look at Access Bank stock’s chart:
From the chart screenshot, Access bank stock, supported by the increasing volume of shares traded, is on track to its key resistance price of N7.3 – N7.61, a key level the stock has resisted twice in the past (February: A and March: B).
As a short term trader, profit taking at this point might be imminent.
Comparative analysis
Ecobank, which closed at N10.75, reported N102b profit after tax and an EPS of N3.3. Access, on the other hand, has an EPS (TTM) of N3.31 and if the bank maintains its double-digit Q on Q growth, my 2019 fair value estimate (using a maximum weight average discount of 20%, even as bond yield falls below 14%) on the bank’s stock is between N12 – N15 posing 50% upside potential.
You are advised to do your due diligence.
