Access Bank, a tier one commercial bank fresh off a merger with Diamond bank, saw its share price jump by the most in over three years after the lender released consolidated financial results that showed a 86 percent surge in profit.
This is the first result to be published by the new entity to emerge from the merger with Diamond bank.
Shares of Access bank rose 9.92 percent to its highest level in the last 17 trading days in 2019 to close at N6.65 on Wednesday from N6.05 the previous trading day.
Wednesday’s performance increased shareholders’ wealth by N21.33 billion as the bank’s market value closed at N236.376 billion.
“Investors perceived their earnings to be strong and inpressive, hence taking positions,” Gbolahan Ologunro, equity research analyst, CSL stockbrokers.
“I believe the bank should have started in its conference call that the income statement is not a combined report since entries doesn’t reflect a combined financial,” Ologunro added.
“A combined result would have reflected a dilution in earnings but we didn’t see that, hence I anticipate a reversal in Access stock performance tomorrow.”
Access bank kick started the year on a solid note after recording a surge by 86 percent in its profit after tax (PAT) for the period ended Q1 2019, being the first deposit money bank on the exchange to release its first quarter report for the year 2019.
The financial report of the bank is said to reflect the result of the combined entity after merger with Diamond Bank plc which was concluded in the first quarter of the year 2019.
As reported by the bank on Nigeria stock exchange (NSE) market, PAT jumped to N41.14 billion in Q1 2019 against N22.11 billion recorded in the previous corresponding year.
Our analysis showed that the bank’s PAT in Q1 2019 is about 43 percent of total net income realised in full year 2018 of N94 billion, depicting the resultant effect of a consolidation with diamond bank.
Other key indices in the income statement showed an increased by 16 percent in interest income to N110.77 billion from N95.59 billion in corresponding period in 2018. Component of interest income during the periods reflected the combination of income from financial assets not at and at fair value through profit or loss (FVTPL).
Also, the bank reported a non-performing loans (NPL) ratio of 10 percent for Q1 2019 compared to 4.7 percent as at Q1 2018 due to acquired NPLs from the merger as implied by the bank
Capital adequacy ratio (Bank) also stood at of 17.2 percent as reported by the bank. “We believe this is inclusive of the debt raise of US$162.5 million,” analysts at CSL opined.
“We have a buy rating on Access Bank with a target price of N10.32/s,” analyst further stated in a report released on Tuesday.
Also, fee and commission income during the period declined marginally by about 2 percent, despite consolidation with Diamond Bank.
In a conference call with Access Bank on Wednesday, the management explained that the drop in fee income was as a result of reduced economic activity as a result of election activities, free withdrawal on Diamond bank ATMs, reduction in liquidity related fees also cautious and sceptical about lending, cut down on overall loan growth.
Speaking on achieving apex bank’s benchmark on non-performing loan ratio (NPL) of 5 percent, Access bank remained optimistic.
“Bringing the NPL to 5 percent is doable, by getting additional rights offs, take off provision on some assets for example on Geometric Power, it will bring them down significantly. This will be brought down within the next two years,” management assured.
Our analysis shows that equity investments in Geometric power limited of the combined entity accounts for 70 percent of total investment value of N10.7 billion.