Access Holdings: Success in acquisition, struggle with shareholder value

In 2002, when a young Aig-Imoukhuede and Herbert Wigwe bought into Access Bank, their mission was clear: to take the bank from position 80 out of 90 to one of the top ten banks in Nigeria within five years.

They achieved this with relative ease, and it took them just three years. 

Almost two decades later, Access Bank has grown into Access Holdings (Accesscorp), a holding company that spans banking, asset management, insurance, and fintech.

The corporation has also catapulted into the top 5 and first position as Nigeria’s largest bank by total assets. 

Access Holdings has since blown past competing with Nigerian banks and has now set its sights on the continent. This time, they want to be among the top 5 banks in Africa (the bank was not clear by what measure).  

In its recent facts behind the figure’s presentation for its planned N350 billion rights issue held at the NGX, the bank’s managing director and chief executive Roosevelt Ogbonna boisterously stated that the bank is not only the largest lender in the country by total assets, loans and advances, and deposits, but is also the ‘fastest growing bank’ on the continent. 

He goes on to state that the bank is first in many other aspects except, of course, where it matters most to shareholders: market valuation, the ultimate measure of performance for any quoted company. 

Access Holdings is currently valued at N689 billion ($430.9 million) the least valued of the top-tier banks in Nigeria. Its main rivals, Zenith Bank and GTCO are currently valued at N1.1 trillion and N1.3 billion respectively. FBNH and UBA are also highly valued at N791 billion and N781 billion respectively. 

Access Holdings also ranks last when it comes to the price-to-earnings (P/E) multiple, which indicates a low valuation the closer the number is to one or below one. Access Corp currently trades at just 1x, compared to its peers, who trade at multiples of 2x or higher.  

Additionally, it trails in terms of the price-to-book (P/B) ratio, being valued at a 70% plus discount to book value. This issue becomes even more pertinent, as the bank approaches investors for a capital raise. 

This low valuation despite the bank’s growth and profitability raises several questions about investor sentiment and market perception. While Access Holdings has expanded its assets and footprint across Africa, these achievements have not translated into higher market valuation.  

This is a conundrum that shareholders of Access Holdings continue to deal with. Why are investors assigning a much lower valuation to Access Holdings when compared to its peers? The disparity is perplexing given the bank’s impressive growth trajectory and operational achievements.

The answer may lie in a combination of factors including high debt levels, relatively lower dividend payouts, and perhaps lingering concerns over the sustainability of its aggressive expansion strategy.  

Access Bank founders always had an ambition of taking the bank to the number one position in terms of total assets.

This means the focus would always be on organic and inorganic growth, requiring that it acquire just about any financial institution that fits its growth plans. 

Proponents of aggressive growth often suggest the tradeoff for lower profits lies in a brighter future, which is why they often have high valuation multiples.

However, this is not the case for Access Corporation. It has continued to deliver profits every year, but then its valuation has remained subdued in most parameters, especially when compared to its peers. 

Whilst not the best in terms of fundamentals, it is still up there as one of the best-performing banks in the country in terms of profitability growth. Perhaps where it may be lagging is in dividend payouts. Access Bank averages a paltry 23% in average (5 years) dividend payout ratio (per Nairalytics data), one of the least when compared to its tier-one peers. 

The bank knows this well and tried to address it in its facts behind the presentation of the figures where Roosevelt claimed other banks that “pay big dividends have zero positive NPV projects,” alluding that its inability to compete in the area of dividends is because it has been investing in projects of the future that will deliver dividends. 

In the same presentation, the bank stated they were now in the consolidation stage of their growth plan, suggesting the era of mergers may be coming to a slow end. It appears the bank has realized valuation still matters to shareholders despite its aggressive growth strategy. 

Another plausible reason why the bank is likely undervalued could be its low shareholder yield, which indicates whether a company is returning enough value to its shareholders.

It is the combination of cash dividends paid, share buybacks, and debt repayments as a ratio of a company’s market valuation. While Access Bank ranks high in terms of dividend yield, it ranks low in terms of shareholder yield largely because of its large debt accumulation.  

Access Holdings is the most leveraged financial institution in Nigeria with over N3.1 trillion in debt securities and interest-bearing debts compared to a net asset of N2.46 trillion. Thus, while it has expanded rapidly in assets, most of its acquisitions have been funded by debt, which will come at a cost to shareholder return. 

Most of the debt has funded the bank’s expansion and investment strategy over the years, providing it with ample economies of scale to compete not just as a local bank but as a pan-African behemoth. However, this means little to shareholders if it does not translate into value through improved dividends and share price appreciation. 

Unsurprisingly, Access Holdings is nowhere near the top 20 financial institutions in Africa in terms of market capitalization. Achieving that status requires more than aggressive acquisitions and balance sheet expansion; it demands a clear strategy for enhancing shareholder value. 

As Access Holdings proceeds on its massive rights issue, the jury will be out on the management’s ability to deliver returns to shareholders in terms of share price valuation and superior returns. 

As Roosevelt stated, “We have baked the pie now, so it is time to eat the pie.”