Access Holdings current valuation is an attractive entry point into a diversified Group

Cheap entry point into a growing and profitable financial conglomerate that is de-risking as it grows In the context of Access Holdings’ capital raising program (announced in 2023) and its recently-announced 1:2 rights issues, we believe that its current valuation represents an attractive entry point into a diversified pan-African and global growth story.

• Access Holdings trades at 0.31x its book value. To the extent that (a) its book value is likely to increase with time (retained earnings), (b) the market in future decides to rate its shares more highly (its Nigerian peers Zenith Bank and Guaranty Trust Holding Company are valued at 0.41x and 0.70x price-to-book, respectively), 0.31x price-to-book appears an excellent entry point today.
• How solid is the book value? Non-performing loans stood at 3.1% of gross loans at FY2023 with a cost of risk at 1.2%, an entirely manageable sum given FY2023 Pre-tax Profits of N729.0bn (all NPLs could be written off at a cost of less than 6-months Pre-tax Profits with zero impact on book value).
• In the context of Naira devaluation Access Holdings’ asset quality gets better, not worse. At FY2023 20% of its assets and 26% of its equity were in its UK subsidiary, The Access Bank UK, with a high weighting to short-term (trade finance) loans. At FY2023 21% of its equity was spread across 13 African subsidiaries, a highly diversified and non-correlating portfolio of risk. Naira devaluation in Q1 2024 already means that close to 50% of its Net Profits are likely to come from outside Nigeria, approximately 25% from the UK, 25% from Africa ex-Nigeria. We think there is a strong case for Access Holdings’ rating breaking through the sovereign ceiling
• Rather than a single-market Nigerian bank, Access Holdings deserves to be rated as a diversified frontier market investment play, with a strong weighting in the UK. Its speedy development of non-banking revenues (e.g. bancassurance commissions, with a recent CAGR of 66%) points to a comparison with a company like Brazil’s Itau. And Itau trades at an historic price-to-earnings ratio of 8.8x, compared with Access Holdings’ 1.1x.
• Access Holdings has one of the biggest footprints in Africa, with some 60 million customers. It is no flag-planter: in its 13 African countries (ex-Nigeria) it ranks top-5 by Pre-tax Profits in six of them, top-10 in 10 of them. It aims to be a top-3 bank in each market (ex-South Africa) through a combination of organic growth and acquisitions. Yet, these subsidiaries are mainly profitable, lowering the strain on group capital.
• The company has a strong culture, with continuity among its senior management. A decade with the company is not unusual among its senior executives, over two decades in the case of the current managing director. The culture is to expand the business aggressively while maintaining a tight rein on costs. It has a rigorous training and retention program honed over many years.
• As a strategic avenue, technology has not eluded Access Holdings. It considers several hundred tech investments annually, picking a few to back. Its investment in payments service provider Hydrogen, is proving a winner with over N11.0 trillion of payments processed in 2023.
• In short, we believe Access Holdings is overdue a re-rate by the market in view of its growth and diversification. SOURCE: Coronation Merchant bank.
• Read the full report HERE