As Access Bank is putting final touches to its N68 billion Rights Issue in the last quarter of the year, and the Group Managing Director (GMD), Herbert Wigwe, says it is all in the interest of shareholders.
Raising more funds will provide greater opportunity to grow the loans book and potential to generate more profit that goes straight to shareholders’ pockets, he said.
He disclosed that the audited half year (H1) 2014 result “shows that we have already made N27 billion profit” and “absorbed the fixed cost of doing business.”
According to Wigwe, if the bank grows loans book, because it does not have incremental cost, apart from the cost of our dollar bond, it will make more money for shareholders.
“We still have the liquidity to lend, but if we raise more capital, we can lend more to Mobil, Unilever, PZ, Statoil, et cetera. These are new names that started coming since our risk rating improved.
“We will be doing disservice to our shareholders if we don’t take advantage of this opportunity right now so that we can lend more to these companies. And the implication in terms of ratio of return to equity will be phenomenal,” he told select journalists in Lagos.
By lending to conglomerates with large infrastructure, a pool of workers and distributors across the country, the bank will take advantage of the business relationship to raise efficiency and profit by leveraging on large infrastructure base that requires no further cost.
“For us, this is a game changer. It is a complete game changer. And what it does is that you have a bank that is extremely high performing and a set of banks that are not operating at the same level.”
Why offer is irresistible
Shareholders are expected to give their approval to raise the Tier 1 capital in an extraordinary general meeting (EGM) on October 13, 2014.
The Nigerian Stock Exchange (NSE) has placed the shares of Access Bank on technical suspension to keep its stock price stable at N9.59 per share until the process is completed and the suspension lifted on January 27, 2015.
Return on equity (ROE) is expected to exceed 23 per cent in full year 2014 (18.3 per cent H1 2014) compared with 17.2 per cent in H1 2013, and earnings per share (EPS) up 8 per cent to 99 kobo from 92 kobo in H1 2013.
Wigwe is concerned, however, that despite the strong fundamentals the stock market has not priced the stock properly against its peers of GT Bank, Zenith and First Bank.
Shareholders had an interim dividend of 25 kobo per share in H1, and are likely to earn more at year end as the bank’s asset quality, capitalisation, and risk management framework improve.
Its credit rating has been upgraded from A to A+ by Agusto & Co, Nigeria’s foremost rating agency.
Highlights of fundamentals in H1
Audited H1 2014 financial performance reflects improved fundamentals. Gross earnings rose 16 per cent to N117 billion and profit after tax 4 per cent to N27 billion.
Operating income shot up 22 per cent to N83 billion (H1 2013: N68 billion), underlined by increased earnings contribution from interest and non-interest income. Net interest margin rose 6.9 per cent, from 5.7 per cent in H1 2013, reflecting lower cost.
Operational efficiency improved according to plan, with cost to income ratio of 63.1 per cent, from 75.9 per cent in H1 2013.
Loans and advances increased 17 per cent to N949 billion, from N811 billion in full year 2013; but Wigwe said the bank only advanced 49% of its credit facilities for real sector. Total assets hit N2 trillion, up 11 per cent from N1.8 trillion in full year 2013.
Customer deposits jumped 9 per cent to N1.45 trillion, up from N1.33 trillion in full year 2013.
Non pderforming loans ratio was down 20bps to 2.5 per cent, from 2.7 per cent in December 2013; coverage ratio (with regulatory risk reserves) of 139 per cent, up from 122 per cent in December 2013.
With 366 branches, 6.9 million customers, 1,042 automated teller machines (ATMs), 11,846 POS machines, 21 per cent capital adequacy ratio – 5 per cent more than the required 16 per cent for systemically important banks (SIBs), a threshold only Access Bank and two others have crossed – there is no doubt that it is among the top four in the country.
But the stock price less than N10 per share while its peers sells for between N15 and N28 per share which is why Wigwe said the offer is at a discount.
Corporate history points to top three
Corporate history points to sustained strategic growth, rising from 68th position in ranking in 2002 to top five in 2012 following the acquisition of Intercontinental Bank.
Buoyed by this growth trajectory, Access Bank has set out for another five year growth to be in the top three and higher.
“We are entering the third phase of corporate strategic growth to become number one, two or three, and the world’s most respected African bank by 2017,” Wigwe disclosed.
Access Bank was the first to issue local bond in 2002, and it raised N15 billion which was used to expand and be in the top 10 in 2007. The objective was achieved.
In 2007, the bank raised N136 billion in initial public offer (IPO) for growth, which was actualised by 2012. Another N150 billion was raised through direct foreign investment (DFI).
“We raised Euro bond of $400 million which boosted our capital and gave us the headroom to support additional growth. It also implies the bank has huge dollar liquidity as long term funds top lend to multinationals and oil majors which may need credit facilities,” Wigwe said.
Access Bank aspires to be the most diversified bank next to none in Africa, underscored by robust risk management, capital adequacy at all times, and sound corporate governance.
“We have a very interesting bank operating at the very best of risk rating, with appropriate footprints across the country, having large infrastructure; 6.9 million customers and still growing, with only one competitor ahead of us.”
