Access Holdings Plc Rights Issue: The Takeaways

On July 7, 2024, Access Holdings Plc announced that it received approval from the Securities and Exchange Commission to execute a rights issue of 17.772 billion ordinary shares at N19.75 each, based on 1 new share for every 2 held as of June 7, 2024. 

Compared to the June 7, qualifying date price of N17.25, the rights issue is issued at a premium. 

As of June 9, 2024, Access Holdings’ share price stood at N19.35, which is 2% lower than the rights issue price of N19.75.   

On July 8, the opening day of the rights issue, the share price opened at N19.20, appreciated by 2% to close at N19.20 and then declined by N0.25 to close at N19.35 on July 9. 

These fluctuations raised concerns among shareholders during the “Facts Behind the Issue” presentation at the Nigerian Exchange. 

This might seem like a disincentive for participating, as shareholders might believe they can acquire shares more cheaply on the open market.  

However, this perspective may shift when one considers the bank’s adduced reasons for the price disparity and the longer-term share price situation.  

Aigboje Aig-Imoukhuede, Chairman of Access Holdings, explained that the higher issue price is justified by the bank’s strong earnings profile.  

He highlighted that significant earnings potential and robust financial performance underpin the bank’s valuation.  

Even without currency devaluation profits, the bank shows potential earnings of about N17 per share, with a trading price of around N19.75 

Additionally, according to the rights issue circular, the issue price represents a: 

• Discount of approximately 19% to the closing price of N24.50 on March 28, 2024. 

• Discount of approximately 21% to the 90-day VWAP of N25.03 on March 28, 2024. 

Furthermore, as of the close of trading on July 9, 2024, the average share price for this year is N21.29. This suggests that the rights issue price of N19.75 is a discount relative to this average.  

Looking at the five-year average share price of N9.28, this year’s average price of N21.29, and last year’s closing price of N23.15 reflect a significant growth trajectory for Access Holdings.  

This substantial increase highlights the company’s progress and improved market valuation over the years and presents an opportunity to acquire more shares at a price lower than the average market valuation over the years. 

However, overall, the primary concern for shareholders is to evaluate the strategic advantages of participating in the rights issue and the impact of the additional funds on the bank’s financial stability and potential for future growth. 

According to the bank, the essence of the right issue is to: 

• Enhance the bank’s CET1 capital and capital adequacy ratio of its flagship subsidiary, Access Bank, in compliance with the regulatory capital requirements, thereby deepening the Bank’s ability to withstand systemic shocks. 

• Strengthen the Bank’s fortress balance sheet, allowing it to meet its and other banking subsidiaries’ growth needs, in line with the Group’s medium-term strategic objectives. 

Additionally, the bank stated it will use: 

• 65% (N223.009 billion) for lending. 

• 20% (N68.618 billion) for IT infrastructure upgrades and development. 

• 15% (N51.464 billion) for enhancing distribution and product channels. 

These plans have the potential to enhance the bank’s bottom line, provided that the funds are effectively and efficiently used as highlighted. 

These plans have the potential to enhance the bank’s bottom line. 

With a substantial portion of the rights issue proceeds allocated for lending, Access Holdings can expand its lending activities, which can positively impact profitability, financial stability, and growth. 

This expansion is likely to boost the bank’s profitability trend through increased interest income.  

• In 2023, loans and advances increased by 60.5% year-on-year to N8.9 trillion from N5.6 trillion in 2022. This upward trend continued into Q1 2024, with loans and advances reaching N9.63 trillion. 

• According to the bank, the resultant effect of the increased lending capacity was a significant rise in gross earnings. In 2023, gross earnings grew 87% year-on-year to N2.59 trillion from N1.38 trillion in 2022. This growth was driven by a 100% year-on-year increase in interest income and a 67.9% year-on-year growth in non-interest income. 

• Pre-tax profits grew 334.76% YoY to N729.001 billion.  It achieved earnings per share of N17.23 based on a post-tax profit of N619.324 billion, a 284% increase from the N4.49 earnings per share in 2022. 

• At the offer price of N19.75 per share, the price-to-earnings (P/E) ratio of 1.15x is notably lower compared to industry peers, suggesting that Access Bank shares might be undervalued. 

Access Holdings has set a target to achieve a profit of N10 trillion by 2027 as announced by Access Bank’s CEO, Roosevelt Ogbonna during the ‘Facts Behind the Rights Issue Presentation’ in Lagos on Tuesday. 

Access Holdings Plc’s strong performance across most key growth metrics and its profitability projections are commendable and crucial to maintain. 

However, the key critical success factor will lie in the bank’s ability to manage credit risk effectively, especially in the present heightened-risk environment that has impacted the bank’s net interest income after impairment charges, non-performing loans and cost of risk.  

Access Holdings appears to be navigating the heightened-risk environment successfully, as evidenced by its non-performing loan ratio. 

Despite the expansion in loans and advances, the non-performing loan ratio (NPL) improved to 2.8% in 2023 from 3.2% in 2022. 

ACCESSCORP’s position as the second most actively traded stock on the Nigerian Stock Exchange over the past three months (from April 2 to July 8, 2024) highlights the market’s interest and potential positive sentiment surrounding the bank’s ongoing initiatives.  

Takeaways for Shareholders 

• Potential Dilution: The issuance of new shares in a rights issue can dilute the ownership percentage of existing shareholders if they do not participate. 

• Opportunity to Buy at a Discount: Given this year’s average price of N21.29, shareholders will be purchasing the shares at a discount, but absolutely stand to gain if the market price stays above the rights issue price of N19.75. 

• Analysts have set a 12-month price target of N29 for Access Holdings, representing a 50% potential increase from its current price. Given Access Holdings’ 5-year and 52-week high price of N30, this target appears feasible. This projection suggests that analysts expect the stock to perform strongly over the next year. 

• It may also offer shareholders the opportunity to increase their total return. Over the past five years, Access Holdings has consistently paid dividends and is likely to continue in 2024. Purchasing more shares will increase dividend income and add to the total investment return, given its strong dividend yield trend.