Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

EQUITY RESEARCH
NIGERIA
DECEMBER 2011
BANKING
Incorporated in 1989 and subsequently listed in 1998,
Access Bank Plc (Access) is a full scale commercial bank
in Nigeria. It has also expanded its footprint beyond
Nigeria’s borders, with subsidiaries in eight other
African countries, namely Ghana, Sierra Leone, The
Gambia, Cote d’Ivoire, Zambia, Burundi, Rwanda and
the DRC, as well as having a presence in the United
Kingdom. As at FY 2010, the group had over two million
customers served from 148 branches by 2,255
employees across all its jurisdictions. Nigeria remains
the anchor though, with 110 branches and 1,317
employees out of the total.
• An attributable loss in the nine months to Dec 09 of
NGN 4.2bn as the CBN’s strict provisioning came to
the fore was turned around in FY 10, where the group
recorded an attributable profit of NGN 11.2bn.
• The increase in earnings was, however, driven more
by a reduction in the impairment charge, as operating
income actually fell by 4.75% to NGN 65.0bn, as both
net funded income fell y-o-y while non-funded income
reflected a marginal increase.
• In its 9M 11 results to September, a strong recovery in
net interest income as well as an improved CIR led to
earnings increasing by 34.89% to NGN 12.9bn.
• In a move to make the step up from ‘2nd’ to ‘1st’ tier
bank, Access shareholders approved the merger
(effective takeover) of the bank with that of one of
the ‘rescued’ banks, Intercontinental Bank. This will
make the combined entity a top 3-5 bank in Nigeria,
depending on the metric, and we expect the benefits
to Access of the wider branch network and lower cost
of funds to be significant.
• Using a DCF valuation, we value Access Bank at NGN
11.65 per share, without taking into account the
acquisition of Intercontinental. A coverage based PBV
average based on the last published post merger proforma
accounts suggests a valuation of NGN 10.21 per
share. In our view, Access looks best placed to benefit
from M&A activity relative to its peers. BUY.
Recommendation
BUY
Bloomberg Code
ACCESS:NL
Current Price (NGN) 4.9
Current Price (USc) 3.0
Target Price (NGN) 11.6
Target Price (USc) 7.2
Upside (%) 140.2
Liquidity
Market Cap (NGN m) 86 758
Shares (m) 17 888
Free Float (est. %) 80.5
Ave. daily vol ('000) - 1 yr. 16.9
Price Performance
Price, 12 months ago (NGN) 125.0
Change (%) (96.1)
Price, 6 months ago (NGN) 130.0
Change (%) (96.3)
Financials (NGN m) 31 Dec F2010 2011F 2012F
Loans & Advances 455 552 670 879 838 051
Net Interest Income (excl. Provisions) 44 166 53 647 69 911
Non-Interest Income 25 355 32 253 43 277
Attributable Earnings 11 245 17 326 25 607
EPS (kobo) 64.8 97.3 143.9
DPS (kobo) 50.0 58.4 86.3
NAV/Share (kobo) 1 027.1 1 027.7 1 113.2
Valuation Ratios Current 2011F 2012F
Earnings Yield* (%) 16.8 20.1 29.7
Dividend Yield (%) 10.3 12.0 17.8
PE* (x) 6.0 5.0 3.4
PBV (x) 0.49 0.47 0.44
RoaA (%) 1.5 1.8 2.0
RoaE (%) 6.5 9.6 13.4
Net Interest Margin (%) 7.3 7.1 7.0
Cost to Income Ratio (%) 70.0 59.7 59.9
* - trailing
Access Bank vs NSE ASI (Rebased)
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
17-Nov-10
17-Dec-10
17-Jan-11
17-Feb-11
17-Mar-11
17-Apr-11
17-May-11
17-Jun-11
17-Jul-11
17-Aug-11
17-Sep-11
17-Oct-11
17-Nov-11
Strengths
Weaknesses
IT focused
Wholesale roots has meant traditionally higher cost of funds
Solid CAR and liquidity ratios
Large oil & gas exposure - should now be resolved via AMCON
Targeting middle market where most peers focus on top end Relatively small branch network
Opportunities
Threats
Intercon acquisition to give increased scale and
Sector to become more competitive
lower cost of funds
Delays/ resistance to acquisition could lead to slower
Combined branch network enhances customer base implementation and benefits thereof accruing
Access Bank
NSE ASI
5