Access Bank Plc: To be commended

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Introduction

Our analysis of Access Bank Plc’s newly released 2016 results shows that it enjoyed immense profitability during the course of the year, just like many other banks did. It was able to step up the level of its core banking operations, deploying a higher level of loans and advances, as well as having an increased deposit base.

Net interest margin, a bank’s true test of effectiveness, improved during the course of the year, as did the bank’s profit margin, which is its ability to retain profit from operations.

With a profit for the year that was higher than that of the prior year (while many other companies in Nigeria recorded either lower profits or outright losses), the bank was able to pay shareholders a higher level of dividend than it did in the preceding year.

We however cannot tell exactly how the 2017 financial year will end for the bank. On one hand, Nigeria’s economic recession does not seem to be biting as hard as it did in 2016 (which is good news). On the other hand, many 2017 first quarter results of companies that have been released show a decline in the ability of Nigerian companies to earn income or hold on to what little income is earned due to galloping operational costs (which is bad news).

 

Core operations

Just like many other Nigerian banks, the 2016 FY was an excellent year for Access Bank. Like many other banks we have already analysed, Access Bank didn’t seem to feel the sharp effect of Nigeria’s economic recession. Rather, it expanded its core banking operations during the course of the year, and also stepped up its non-core banking businesses. It therefore had a better gross earnings of N381.3 billion in 2016, up from N337.2 billion in 2015. It also had a better interest margin of 56.3 per cent, higher than 50.7 per cent in the prior year, indicative of a better efficiency in the core business of lending and borrowing. This better net interest margin was perpetuated despite a closer gap between average lending rate and average interest rate. Average lending rate further decreased over the preceding year’s (to 13.3 per cent from 14.8 per cent) while average deposit interest rate also dipped to 4.8 per cent from 5.7 per cent. This means that the bank charged its lenders a lower interest rate, it paid its depositors a lower interest as well.

During the course of the year, the bank gave out a higher level of loans and advances, and also received more deposits from customers as well.

Profit for the year, at N71.4 billion, was about 8.3 per cent more than the N65.9 billion profit recorded in the preceding year.

Earnings per share, was unpredictably higher than that of the prior year, closing at 250 kobo, as compared to 265 kobo before. Dividend per share however improved to 65 kobo in 2016 from 55 kobo in 2015.

 

Profitability ratios

The bank expectedly recorded better results in respect to profitability in 2016. With a higher revenue as well as a higher profit, the bank recorded a profit margin that was better than that of 2015. At 23.7 per cent, the bank’s profit margin was higher than the 22.2 per cent recorded in the prior year and is to be commended. What this means is that for every N100 earned by the bank in the course of the year, N23.70 made it to the profit position, as compared to N22.20 for the year preceding 2015.

The bank however did not squeeze as much profit as was possible from assets, as assets deployed earned slightly less in 2016 than it did in 2015. Return on assets (ROA) for the year stood at 2.6 per cent in 2016, as compared to 2.9 per cent in 2015. For the 2015 financial year, Access Bank deployed equity valued at N454.5 billion and for every N100 equity deployed, the bank made an after-tax profit of N15.70, a decline over the profit of N17.90 made in 2014. It is however important to note that the declines in ROA and ROE were mild and shouldn’t really be a concern.

Employing more employees in 2016 than in the previous year, earnings per employee improved to N92.9 million on the average, up from N87.0 million in 2015. This is an indication of employee productivity and company efficiency.

 

Other ratios

The bank had a better capital adequacy standing in 2016 than it did in 2015, meaning that the bank is doing well in its primary business of giving out loans. Access Bank’s capital adequacy improved in 2016 to 20.7 per cent, higher than 20.0 per cent in the prior year, and also higher than the 16 per cent rate mandated for Systemically Important Banks.

For the 2016 financial year, the bank recorded a slightly higher proportion of loans classified as non-performing when compared to the prior year’s. While the 2.1 per cent result was higher than 1.7 per cent in the preceding year, it is however still low enough to suggest an excellent recovery strategy for loans. This result also fell under the Central Bank’s regulatory threshold of 3.66 per cent.

The bank had a debt to equity ratio of 6.7, meaning that it is using N6.70 of liabilities in addition to each N1.00 of stockholders equity. In other words, the bank is using N7.70 of total capital for every N1.00 of equity capital, higher than the N7.00 it did in the erstwhile year.

 

Sustainable growth

Access Bank towed the line of other banks in 2016, paying shareholders a higher level of dividend in 2016 than it did in 2015. Shareholders received a total dividend of 65 kobo, higher than 55 kobo in the prior year. Because profit for the year was significantly higher than that of 2015, retention ratio in 2016 was higher than that of 2015.  Assets/equity ratio was higher than that of the prior year while asset turnover declined slightly. Analysis shows that sustainable growth for 2016 was 17.1 per cent, higher than 15.6 per cent before, and this translates to mean that the bank’s growth ceiling, utilizing only its own source of funding for growth, improved. Meanwhile, actual growth was 13.0 per cent, lower than that of the preceding year. The actual growth was lower than sustainable growth, meaning that Access Bank grew under its ceiling.

 

Stock value

Contrary to expectation, Access Bank’s stock is undervalued. Currently trading at N6.17, it is one of the median priced stocks on the banking sub sector of NSE. Our analysis however shows that the price is undervalued at this point. Several indicators point to this.

Net assets per share was N21.62, more than thrice the current market price of N6.17, and indicative of undervaluation. Book value at N454 billion is also more than twice the size of current market capitalisation which stands at N170.2 billion.

The stock is relatively low priced enough that we recommend a buy for those who can afford it.

 

Unique strategies

In recent years, Access Bank’s commitment to innovation and sustainable banking practices has distinguished it amongst other banks. The bank continues to reinvent itself with a view to delivering superlative services that exceed customers’ expectations. Its ambition is to become the World’s Most Respected African Bank.

 

Conclusion

This has been a good year for Access Bank. It remains to be seen if the 2017 financial year will end on the same note.

*Source: Access Bank’s 2016 financial report

*The Nigerian Stock Exchange

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