In my first column of 2019, published in January and titled ‘Unlocking value in the Access Bank – Diamond merger’, I noted that most of the negative sentiment that had followed the merger announcement was backwards looking and in our opinion missed the point completely.
See…Unlocking value in the Access Bank – Diamond merger
I went on to add that “investors should instead be asking themselves what kind of Nigerian banking/financial services sector will emerge from 2020…and who will be in the dominant position then to drive profitability. We think Access – Diamond will be a major winner in the evolving financial services landscape.”
Trading at N10.50 per share at the close of the stock market on Friday November 15, Access Bank has outperformed the Nigerian Stock Exchange (NSE) All Share Index (ASI) and most other stocks with its strong positive return of +54.4 percent year-to-date (YTD).
Original Diamond Bank shareholders who received 2 new Access Bank shares for every 7 held are also sitting pretty on solid gains.
Back in January part of my thesis for Access Bank was that the combined entity should have a fair value of about N11.40 per share and a market capitalisation of just over N400 billion.
The bigger merged entity Access Bank today has a market capitalisation of N373 billion, up 61 percent from the N230.75 billion it was at on March 20th when the merger officially successfully closed.
It’s most recent results also show that growth is accelerating.
Over the nine months period of 2019 (Jan – Sep), Access Bank recorded profit before tax (PBT) and profit after tax (PAT) growth of 47 percent and 44 percent year on year.
This was equivalent to N103.1 billion (N70.2bn, 2018) for PBT and N90.7 billion (N62.9BN) for PAT.
Net interest income for the period came in at N210.2 billion, net impairment charges for bad loans remained flat at N10.6 billion, despite an enlarged balance sheet, while fee and commission income surged to N66.8 billion (N43.5bn, 2018), as a larger customer base engaged in more transactions as a result of the merger.
Total assets came in at N6.6 trillion, largely as a result of a surge in loans and advances to customers to N2.76 trillion.
Loans to individuals including credit card loans, auto loans, mortgages, personal loans and overdrafts surged to N80.5 billion in the period, from N32 billion a year earlier, before the merger.
Loans to corporates also moved higher to N2.27 trillion from N1.64 trillion.
Access Bank recorded loan growth of N60.8 billion in Q3 alone, and booked N4.6 billion write-back on previous impairment of financial assets, which moderated total provisioning.
The banks cost to income ratio fell to 67 percent which is positive as the lower percentage denotes improved efficiency, while Non Performing Loans ratio improved also improved quarter on quarter to 6.3 percent and capital adequacy ratio remained strong at 20.3 percent.
Access Banks Loan to Deposit (LDR) Ratio is ahead of the 65 percent regulatory minimum effective 31st December imposed by the Central Bank of Nigeria (CBN), as it came in at 67.4 percent.
Deposits from customers as expected surged to N4.23 trillion, compared to N2.56 trillion in 2018.
The deposits breakdown was term deposits at N1.93 trillion, demand deposits at N1.485 trillion and savings deposits at N820.9 billion.
Access Bank is currently trading at 0.6x book value, which gives it some upside potential as we believe fair value is closer to 0.8x book.
I had noted in my earlier article that the coming mobile money, plus digital financial inclusion is an opportunity for the new bank given Access adoption of technology.
The Banking sector (assets) has grown at circa 10 percent per annum on average since 2010 in Naira terms. This should provide steady lift to profits assuming more financially excluded are gradually being lifted into the formal space using digital financial services (DFS).
Access Bank today has 29 million customers, including more than 13 million mobile customers, as well as 3,100 ATMs, 15.9 million cards and around 32,000 Point of sales terminals.
Expectedly income from electronic channels and other E-business surged by 58 percent to N8.85 billion from N5.59 billion in 2018.
Access Bank probably still has a lot of profit levers to pull including reducing operating and personnel expenses as synergy gains from the merger continues to materialise into 2020.
We expect this will have direct positive impact on the bottom-line.
The Access Bank team has also learnt a lot from the experience of swallowing Intercontinental Bank and other earlier mergers it undertook. The bank has absorbed six institutions in the past 15 years. According to management, the same team who led the past successful integration were responsible for delivering the merger with Diamond Bank and are overseeing the transition to the enlarged entity.
The markets are clearly elated with the trajectory of the bank. It is a welcome development considering some earlier negative sentiment around this transformative merger for Nigeria’s banking sector!
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