Investors have recently been betting big on Access Bank the Nigerian lender that bought Intercontinental Bank Plc, one of the lenders bailed out by the Central Bank in 2009. The Merger will create one of Nigeria’s top three banking groups by several indices, with management projected net income of NGN 24.1 Billion ($153 Million) and 32.4 Billion ($205 Million) for Full Year 2012 and 2013 respectively, and a combined asset base in excess of NGN 2 Trillion ($13 Billion).
Access bank stock is up 44.2 per cent since Jan. 23, closing at NGN6.8 yesterday, its highest value in about 7 months. “I think investors are pricing in the expected synergy gains from the acquisition of Intercontinental Bank by Access Bank,” Kayode Tinuoye, head of research at Afrinvest West Africa stated in a note to Businessday.
“Specifically, it is speculated that Access bank will now fully merge the operations with Intercontinental bank earlier than initially stated. Hence, we should see the effect on the enlarged Access Bank in its December 2011 results due in a couple of weeks.” Access bank is expected to release Full Year (FY) 2011 results on February 27, and on January 30, 2012 announced the completion of its acquisition of Intercontinental Bank Plc, much earlier than most analyst expectations.
“The conclusion of the merger and acquisition transaction brings together the proven prudential management of Access Bank and the extensive geographical footprint of Intercontinental and we are now focused on building a truly sustainable Nigerian Bank which is poised to be Africa's most respected bank”, Aigboje Aig-Imoukhuede, Chief Executive Officer (CEO) Access Bank said in his reaction to the development.
The earlier than expected completion of the merger process offers Access the synergy of a significant reduction in cost of funds due to its large retail funding base, serving as a perfect complement to the robust corporate banking model of Access.
The acquisition also effectively takes Access to the top-tier banking league and offers significant earnings prospects from a much healthier Intercontinental Bank's balance sheet. Earnings are expected to rise at Nigerian Banks in 2012, after the country implemented a banking reform following a debt crisis in 2008 and 2009, triggered by loans given to stock market speculators.
The central bank fired eight chief executives of the country’s 24 banks in 2009, and set up the Asset Management Corporation of Nigeria (AMCON) to buy the debts and stabilize the banking sector. AMCON CEO, Mustapha Chike Obi hinted in an interview November 28 that the corporation has acquired NGN 3.14 trillion worth of debts.
Intercontinental Bank sold over N480 Billion of its Non Performing Loans (NPLs) to AMCON during 2010 and 2011, and a further injection of N550 Billion by AMCON was used to recapitalize Intercontinental Bank to a position of zero, before the injection of N50 Billion by Access Bank to achieve an adequate level of regulatory Capital Adequacy Ratio (CAR).
Access Banks enlarged balance sheet gives it the potential to take on larger ticket transactions according to the latest research of Stanbic IBTC Bank Analysts Muyiwa Oni and Rele Adesina out January 2012, “We expect Access Bank to grow its loan book by 20 per cent in FY12 and maintain our Buy recommendation on Access Bank, with a target price of N8.57” they said. Access Bank share price closed yesterday at N6.80, implying a potential 26 per cent upside to the Stanbic Analysts target price of N8.75. Earnings per share of the combined entity are expected to hit N1.20 at FY 2012 and rise by 35 per cent to N1.62 for FY 2013 according to recent management projections. Forward looking investors may see the shares as cheap at current levels and may explain the recent rally in Access bank stock.
