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WHEN SIZE BECCOMES AN ALBATROSS.

 FirstEdu Loan campaign

                           As the Access Bank buries  N105 B  delinquent loans  and takes other initiatives to rev up its competitiveness

     One of the biggest lessons taught by  General Gordon R, Sullivan (Retired) of the United States Army  is that , “hope is not a method”.  , “It does not matter how much potential a company poses if latent possibilities are not translated into realities through competence and disciplined policy execution, it  remains a pie in the sky”, says General Gordon .  Access Bank has created a big hope  with its current  massive   industry leadership potentials  ; the bank  has overtaken and gained a size advantage.

However, this feat is becoming an albatross of a sort with the bank finding it extremely difficult to convert to values commensurable to the hope and big potentials created. For this , the bank’s dream of overtaking its rivals is still in limbo ; its investors are fighting back for its lean values with lower valuations . This has given its rivals to have advantage over it with their master strokes of execution that deliver better and superior values to investors ; for Access Bank, its  ambition remains “a pie in the sky  

 This is the been the simmering battle; a battle of wits , between the parties involved in the struggle for leadership.  Every initiative  from Access Bank  receives a  counter move  from a few incumbent leaders.   And investors are very much on the watchtower for their portions or benefits  .

 No doubt, Access bank’s management led by  Herbert Wigwe  is very ambitious  and very smart . It  has proved to be very good at  merger and acquisition  ;   its ambition is to  leverage  on this strategy  to rule the market and the banking industry. One of its tactics is to court the attention of its entire stakeholders particularly the investors, both the existing and the potential ones, to translate its dream to reality.  The efforts are surely paying off .  In terms of dominance, its merger with Diamond Bank and other expansionary measures have turned it into Nigeria’s largest bank and one of Africa’s top banks.  Its  large size provides the benefits of economies of scale and helps it to milk the opportunities provided by the synergies.  

   It has built the size and revenue above its peers, but has failed to translate these to values of equal momentum to generate competitive benefits   for its investors. Size is not enough . That is the signal from investors .In a nutshell,  the investors are proving they could not be bamboozled with its  massive  size in assets and revenue alone   . Moreover, there is always a price for everything    To whom much is given much is expected ;  the bank  is expected to provide commensurate values to its investors ,the golden hen  that laid the golden eggs. Though it is  struggling to do this,    Access Bank’s lower valuation multiples relative to its rivals are its major Achilles and drawbacks that give  them   an  edge  over it . They combine size with efficiency and deliver better values to investors The problem with Access Bank is that the management is yet to or unable to key into the belief that bigness without leverage is obesity .

Access Bank is valued much less than its peers by the perception of the market  and the impacts of this are clear   .  Its share price is just  struggling   to gain the same momentum achieved by its rivals   .  Although  the bank’s  stock which closed  at the  last trading day  of Friday, April 30, 2021  at N7.30   per share  recorded a 1.39% gain over its previous closing price of N 7.20  ,  its    market valuation position is  still   too cold for comfort for some analysts and observers .    Its  began the year with a share price of 8.45 NGN  it  has since lost 13.61% off that price valuation, ranking it 144th on the NSE in terms of year-to-date performance.  Except  its one year market performance  of 5% which is positive  ,its one week, four  weeks and three months and six months returns  are all negative . Shareholders’ worries are further compounded by the fact that it has lost 8.75% of the stock’s value from March 31 to date.  

The current price of the bank still remains a subject of controversy . While some analysts believe its stock is undervalued ,other analysts in their review noted that the stock is presently trading above  their fair value which they put N3,15k against its current price of N7.30k .

Some analysts are not even optimistic about its future stock price potentials  .  According to a report from a foreign based financial   firm , both its earnings and revenue are forecasted to grow annually  in five years time  at 13.5% and 9.7%  below the industry 15.8% and 12.3% respectively .  Its earnings are expected to grow marginally below the saving rate at 13.6% per year .Its return on equity is put   low  at  17.9 % in three years time  .

The above earnings and revenue forecast estimates  might not be unconnected with  its past performance . The bank underperformed  the industry with its 11.5% in its  five years  annual earnings growth  as against the 14.4% industry earnings growth .and recorded  a  poor return on equity of 14.8%  Its poor valuation pedigree could be attributed to its poor earnings ,volatile and unstable  dividend payments track records as well as  high level of non cash earnings

Year to date 2020 Access Bank stock has performed poorly when compared to its peers. While the likes of Zenith Bank (33%), UBA (21%),  and Fidelity (23%)  posted double-digit returns, Access Bank fell by 16% in 2020.

 Since its acquisition of Diamond Bank, its valuation has plummeted piling on paper losses for investors who have held the stock  .   Investors have been at the receiving end of  its acquisition spree as they are left to play catch-up. This is because  the benefits of the mergers and acquisitions are yet to result in improved return on investment for anyone who bought the shares over a year ago.  

   In terms of value, the market prices of the stock are lower when compared to its earnings, making it one of the cheapest stocks in the sector. This is buttressed by its 2. 2x   price to earnings ratio, one of the lowest in the sector.  This is against the industry’s  4x and the market 7.2x    A low P/E Ratio indicates that the share price is low compared to company earnings and is undervalued. Though the bank made the biggest revenue among its peers  at the top line, its inability to effectively  convert it to profit led to poor earnings . Ironically  its  merger and acquisition  is expected to  increase the P/E ratio.   By the above multiples  investors are willing to pay  approximately N2.20  for every  N1.00  of  its  earnings. This relatively low compared to its peers or  rivals

Though  stocks of companies having a low price-to-earnings ratio are often considered to be undervalued and should be attractive to investors for future gains , investors  appear to be pessimistic  towards   Access Bank’s  future earning power.   In  spite of   its massive revenue and relative to its peers , its share price is yet to be lifted proportionately . The market is  not  wrong. A company with a low P/E ratio is  could also be  an indication of weak current as well as future performance.   Earnings are substantial when valuing a company’s stock as investors want to know how profitable a company is and how valuable it will be in the future. This is currently where Access Bank is yet to pull weight .

 When Access Bank  share  price  is compared  with  its  current book value it could also be  confirmed that    its investors   rating  is not  strong  .    This is reflected in its  low price   Price to Book ratio  indicating    the value  the market  established  for the business  is below  the book value of its equity. Access Bank is currently valued at N254.2 billion in market capitalization less than half of its  equity funds at N751bn in December 2020  suggesting a price to book ratio of 0.3x       

In the same vein, the  bank also has a lower dividend yield  , a financial ratio that indicates what percentage of the current price of a company’s shares is paid as dividends on a yearly basis  ,compared to its contemporaries. A dividend yield   of    11 %  indicates that someone who invests in  the bank  today, will obtain at least  11 % of its investment back in the form of a cash dividend, if the  bank  produces a profit next year as high as the one it produced this year. This yield is no doubt very competitive  but  a  shrewd investor will consider its dividend payout which stands at mere  24% of its lean earnings relative to its rivals .     

 Watching the bank’s health position particularly its earnings , investors will rather go with some Tier 2 banks that have better upward trends in price appreciation than getting stuck with low valuation multiples .  A  high dividend yield tends to communicate financial strength  while  a  low dividend yield    is not a positive sign of a healthy business but this could have been better if this bank could generate impressive capital gains for its investors as well .  This poor market  perception is perhaps why it has not been able to breach its 52-week high of N10.90.    

Another reason for this is that investors are wary of the bank’s loan book mostly inherited from its merger with Diamond Bank. Since   the merger of his bank with the rested Diamond Bank,  festering asset positions  and skyrocketing cost to income  remain  a big headache and a major source of  sleepless nights to Herbert Wigwe ambition for market and industry leadership .  His bank inherited    a whooping load of nonperforming loans from the merger  ; this,  together with  the challenge of competing in a harsh environment  still remain major potential spoilers.  Though its total impaired loan to its gross risk assets declined from N188,452,B to N161,243B  , a drop of 5.8% in 2019 to 4.3% relative its gross risk assets , it was on the back of  a  whooping  write off .  In  absolute terms   this figure  is massive enough to mess up its  future earnings.

  The  current rating in the industry may not be  farfetched. Wigwe led management has more skills to learn from his rivals .Two issues remain a hard nut for the management of  Access Bank .  These are its  inherited bad loans from acquisitions and control costs . However ,the management is equally worried about the impacts of these on its bottomline and how these lead to  its investors poor perception of the bank . . To tame these  potential spoilers ,the   bank CEO  last year swung to action , rolled up his sleeves ,dug a trench for a total N105 billion  bad and delinquent loans.   . Although this was to  entrench  good governance with full disclosure ,it    affected bottom line.   

     However , to Herbert Wigwe ,its Chief Executive Officer, CEO, the battle of wits continues .  The bank recognizes these  challenges .  Recently  it held  an investor call where it explained its move towards a HoldCo structure. Access Bank will maintain four core subsidiaries under the holding company. They are Access Bank Group – focussed on commercial banking services, Payment Business – its mobile money and payment services business, Lending & Agency Banking – microfinance and microlending services, and Insurance. Its efforts in restructuring into a HoldCo structure as well as expansions to other African regions – from Kenya to South Africa, is expected to further enhance its overall returns, and perhaps drive up valuations.  . From green bonds to foreign listings and a determination to plant its seeds across various nations on the African continent, Access Bank over the past few years has shown its desire to grow across its triple-bottom-line.

On the people front, the bank has a reputation for offering arguably the best incentives to its employees in the banking sector even though last year’s plan to cut down salaries threatened to dent this reputation.It has also introduced some of the sector’s most innovating products aimed at driving financial inclusion and protecting the bank’s market share from FinTechs. The bank has also supported small businesses through loans and financial advisory in line with the CBN’s quest to improve private sector credit. On the environmental front, it’s spending big bucks on CSR, making a name for itself as a leader in  the industry  

Fundamental analysis of recent financials Access Bank has recorded positive strides in terms of its fundamentals .  Herbert Wigwe is an ambitious CEO, and a challenger too. He is neither content to follow nor afraid of orthodoxy , but his firm desire is to rewrite the rules of the game .Like other CEOs in the corporate world , he sets his visions and missions ; and his own strategic architecture, a road map to translate his dreams to reality. , is all focused on changing the destiny of his bank. By now , it is crystal clear and indisputable that a major priority driving the leadership ambition of Access Bank Plc under him is acquisition and merger . From the rested controversial Intercontinental Bank to Diamond and several others in the recent time , the bank appears to be insatiable . 

For his admirers ,the arrowhead of stardust execution of exquisite mergers and acquisition is already delivering. From the look of things ,the strategy is paying off giving additional wings to Wigwe to soar higher and overtake some incumbents in the industry . .In the last financial year 2020, it emerged the biggest bank by assets and revenue; its customer base took a swing giving it another lead in customer deposit . However , analysts are asking , what is the essence of owning the biggest assets that could not give it a laurel where it matters most: the bottom line ?

In 2020, he delivered another solid and resilient figures, albeit at the top-line despite a challenging economic and regulatory landscape . The asset base of the Group remained strong and resilient with Total Assets of N8.68trn in December 2020, a growth of 22% YTD from N7.14trn in December 2019 . Gross Earnings also grew by 14.7% to N765bn from N667bn in the previous quarter. A puffy assets level could indicate improved strengths in mopping up transactions, including a better position in maturity transformation, – the stuff banks are best suited for. It can also mean that the bank has applied some elastic to its wings in the form of more customer touch points, branches and Point of Sale devices. For Access , it was all of these and more.

It recorded an impressive growth in its retail banking business, leading to a 5.8mn growth in customer sign-on during the year via its financial inclusion drive and retail revenue of N177.2bn as against N107.8bn in 2019 . Its customer deposits grew by 31% to N5.59trn in Dec 2020 compared to N4.26trn in2019 with savings account deposits of N1.31trn.

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