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Stock of the Week: Access Bank



Dear Speculators,

Access bank has been my favourite stock since 2016, not because it's the best bank in Nigeria but because of how low the market undervalued the company. I've been talking about it for a year, now I'm writing about it. When big macro events like the '16 recession starts to cloud people's judgement, that's the best time to be a bargain hunter in the stock market.

With about 3.5 trillion in assets and just over 3 trillion in total liabilities, Access bank is one of the largest banks in Nigeria. Book value of the company exceeds N467 billion while its current market value as at 2nd June, 2017 was N258 billion. Thus, the company is selling at a discount to book value of almost 45 percent!

With pretax earnings doubling in just three years between 2013 and 2016 from 45 billion to 90 billion while earnings per share increased from 114k to 221k, it is mind boggling to imagine why the company is still trading at a price-earnings ratio of just 3.22 which by the way is below the industry average. Our estimated pretax profit for Access Bank this year is in excess of 110 billion, with today's stock price of N8.93, which puts our estimated forward PE ratio at 2.34! Assuming momentum remains on the growth in company profitability, the group should report earnings closer to 180 billion in net earnings by 2020! This means that the company is currently trading at less than 1.5 times 2020 net earnings. 

The company could easily push stock prices higher by given back more cash to shareholders through dividends but management has been more than impressive in ignoring this short term strategy, rather it has focused more on retaining this huge profits for reinvestment in the business which will drive earnings and push the stock price higher more sustainably over the long term. Retained earnings grew from 23 billion in 2013 to 90 billion in 2016 while dividend paid out moved rather slowly from 13.7 billion in 2013 to 15.9 billion in 2016. Think the company isn't paying enough to its investors? Think again! Dividend indicated yield as at 2nd June, 2017 was 7.28 percent, making it one of the highest dividend yielding stock among the 30 largest companies in Nigeria. 

Estimated earnings yield for 2017 is over 40 percent which blows past any treasury offerings by the federal government. With equity risk premium in excess of 25 percentage points above the 10 year FGN bond yield, this stock play is a once in a lifetime investment opportunity.

With the stock trading at over 40 percent discount to book value and EPS growing at an average of 20 percent per annum we estimate this stock could exceed 30 naira per share by 2020. This means that the stock could deliver in excess of 4 times return over the next 3 years. 

If my numbers sound unrealistic, then there are only a few people doubting it since the stock is already up 78 percent from a year ago. I've said my piece, go and buy your own share!

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Emeka Ucheaga
Managing Partner
Emeka Ucheaga Advisory

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