Access Bank: Raising Investors’ Value through Rights Issue

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 As shareholders’ interest in Access Bank’s efforts to raise N52.6 billion through a rights issue increases, investment analysts said at N6.90 per unit, the pricing of the rights issue is a discount to the bank’s book value of N12, which shows the inherent value for investors, reports Festus Akanbi

For managers of the various banking institutions in Nigeria, this is a trying period. From whatever angle banking operations are being viewed, the fact remains that apart from the increasingly difficult operating environment largely fuelled by the oil price volatility and the corresponding pressure on the economy, certain pronouncements of financial sector regulators are also weighing heavily on the banking industry.

Investment analysts therefore maintained that the emerging scenario has, more than any other period of the Nigerian banking history, raised the urgent need for banks to create alternative revenue streams in the face of the harvest of regulatory headwinds in the industry over the years.

The reality, according to them, has also accentuated the race for capital adequacy and increased competition for large ticket transaction. Market watchers said, the aforementioned realities and the ultimate need to improve shareholders’ return are factors which have made it imperative for banks to be aggressive.

It was therefore a welcome idea to shareholders of Access Bank when the bank opened its on-going rights issue where it seeks to raise N52.6 billion from existing shareholders.
The bank is selling 7.628 billion shares of 50 kobo each at N6.90 each to raise the money that will enable the bank pursue its expansion and boosts its cash reserves.
The right issue opened on January 26, 2015 and it will run till March 4, 2015.

   However, analysts said the bank might be seeing the rights issue as an opportunity to reward its loyal shareholders given the fact that the N6.90 price per unit adopted is a discount to the book value of the bank put at N12 although the N6.90 is higher than current market price of Access Bank shares.
Assessing the Rights Issue, analysts at WSTC Securities Limited said given the strong fundamentals of the bank, they consider this investment to be potentially profitable.

They said: “At a Price to Book Value of 0.61x, dividend yield of 8.70 per cent and earnings yield of 14.61 per cent, it is good especially for investors with a medium to long term investment horizon. Capital adequacy ratio and non-performing loans (NPLs) of 19 per cent and 2.7 per cent outperform the benchmark of 15 per cent and five per cent respectively. We believe that the group’s focus on shifting its loan book to customers with lower risk ratings, away from customers with higher risk ratings will help it to further reduce its NPLs. This should, in addition to the bank’s steady growth of its loan book, result in an increase in its after tax profits thereby creating more value for shareholders.”

Analysts said market prices of securities on The Nigerian Stock Exchange have dipped significantly and in many cases do not necessarily represent the “true value” of such listed companies.

This is because, global macro concerns regarding oil trading dynamics and domestic currency volatility have led to significant capital flight from the equities markets. They therefore explained that Access Bank’s share price is currently well below book and intrinsic value. Average broker consensus is a “buy” with a target price of N11.84. Stock is currently trading at a 126% discount to the broker consensus target price
Use of Proceeds

The funds raised will be used to upgrade the bank’s information technology platforms and branch network to enable it provide better service and further improve the working environment. The effort will also help to improve its distribution channel infrastructure, which is a condition for the provision of more efficient services to clients. The funds will also be used to augment the bank’s working capital and support risk assets growth

Group Managing Director, Access Bank Plc, Mr. Herbert Wigwe, explained that the proceeds of the rights issue, among others,  would enable it provide better services, upgrade its  branch networks and further improve its working environment.

“The funds raised would provide Access Bank with additional capacity to further consolidate its leading corporate banking business as well as additional capital headroom to support our increasing market share in the SME and retail segments,” Wigwe said.
He noted that despite the challenging conditions in the nation’s banking sector with regulatory changes and increased competition, Access Bank has continued to sharpen its execution skills, thereby ensuring a solid platform to build on.
   Wigwe explained that the capital raising is in line with the bank’s five-year corporate strategy plan to be one of the top three banks in the country and the world’s most respected African bank.

  This, according to him, will be anchored on four critical pillars – capital, human capital, governance and risk management.
“It will also enable the bank to be more competitive and meet the funding needs of its blue chip customers that meet its credit risk criteria,” he said.

Shareholders of the bank, who gave their nod for the rights issue had also authorised that the share capital of the bank be increased from N13 billion made up of 24 billion ordinary shares of 50 kobo and 2 billion preference shares of 50 kobo each, to N20 billion by the creation of 14 billion ordinary shares of 50 kobo each.
  Speaking at the meeting where the resolutions were made, the Chairman of the bank, Mr. Gbenga Oyebode, said despite the challenging conditions in the nation’s banking sector with regulatory changes and increased competition, the bank continued to sharpen its execution skills, thereby ensuring a solid platform to build on.

“I am pleased to inform you, our esteemed shareholders, that the results of the foundation laid in 2013 are already evident as seen from our recently released half year results which showed a 7 percent growth in profit after tax to N22.6 billion,” he stated.
   He added that the bank’s mid term strategy (2013-2018) seeks to optimize the vast opportunities existing primarily in Nigeria and also in the Sub-Saharan African region, and that in furtherance of its objectives of ranking as one of the top three banks in its chosen market, management had identified certain sectors and market segments as growth opportunities for the next five years.

The Bank
  Access Bank is recognised as a leading commercial bank in Nigeria with an extensive distribution network in Sub Saharan Africa and the UK.

Today, the bank, which has seven subsidiaries and 3,192 employees, boasts of 366 branches, 1,042 ATMs and 11,846 POS. Its Capital Adequacy Ratio is 2 per cent, with seven banking subsidiaries and 3,192 employees.
In 2002, Access Bank was 65th out of 89 banks and the bank which boasted of 90,000 customers at the period, had a return on equity of 0.9 per cent and cost to income ratio of 93 per cent, while gross income stood at N2.6billion. Assets was estimated at N11.3 billion, market capitalisation was N25 billion, while the number of branches was 32.

In 2007, the banks fortune improved significantly as it moved to ninth position out of 25 consolidated banks. It recorded 600,000 customers; its return on equity was 25 per cent while its cost to income ratio was put at 62 per cent. It recorded a gross income of N27.9 billion. Its loan portfolio was N108billion, deposits was N205 billion while assets was N409billion.Its market capitalisation for the period was N342 billion. It grew the number of its branches to 118.

The bank rose to the fifth position out of the nation’s 21 banks in 2012 with 6.5 million customers.
Its return on equities rose to 18 per cent, while cost to income ratio was 61 per cent. With a gross income of N208.3 billion and market capitalisation at N241 billion. Access Bank during the period under review approved N609 billion loans, grew deposits to N1,201 billion, with N1,745 billion worth of assets and 349 branches.

Growth Plan
   Access Bank Plc last year unveiled a five-year growth plan, which the Wigwe-led management is executing.  The new vision is to make the bank the most respectable bank in Africa by 2018 and would be driven by what it called Speed, Service and Security (SSS).
Speaking on the vision, Wigwe had said in the last 10 years, Access Bank had focused on wholesale banking, adding that part of the new vision is to get embedded in retail strategy in order to take over that segment of the market. “In our five-year business plan, we have customers as the central focus. We have said going forward into the future, our customers will be taken along as true partners. We want to be all that Nigeria needs in financial services; we want to be the change that Africa needs. By 2018, we will be known as the most respected bank in the African continent.”

According to the CEO, the bank has identified 14 target sectors that would drive the new vision, noting that the bank’s electronic transactions would be second to none globally.
He said that going forward Access Bank would lay emphasis on growing the Small and Medium scale Enterprises (SMEs) as well as support women-owned businesses.
He added that Access Bank would, in years ahead, be consolidating on its reputation to offer timely, improved and secured services to millions of customers.

“We will be transparent. We will take time to understand you and your needs. We will develop the society in which we do business and most importantly, we will deliver on speed, security and service. This is our promise and we want you to hold us responsible for this promise.”

Wigwe assured stakeholders that the bank would also provide all the necessary support to the real sector such that the small enterprises could become big corporate, saying in order to do this, credit would be deployed to critical sectors like infrastructure in view of the critical roles in national economic transformation.

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