Nice one @Bovali

@Bovali...Gracias

@Bovali is it possible to use Enterprise Value for financial institutions?


I think looking at a PE multiple of 12 for banking stock is too ambitious. Based on the historical average multiple in the last 5 years, I think a multiple of 6 is ideal

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Nice one @bovali.That analysis is straight from Cambridge.

bovali:

Valuation of Access Bank’s Stock: A Comprehensive Analysis Using 10 Methods

In this post, I analyze the potential stock price of Access Bank, a major player in Nigeria’s banking industry, using 10 different valuation methods. For each method, I present a worst, base, and best-case scenario. This approach provides a well-rounded view of the stock’s valuation under various market conditions.

1. Price-to-Earnings (P/E) Ratio

The P/E ratio compares the current share price to the company’s earnings per share (EPS). With an EPS of ₦7.61, I applied three different P/E multiples to arrive at potential price ranges.

• Worst Case (P/E = 4x): ₦30.44
• Base Case (P/E = 8x): ₦60.88
• Best Case (P/E = 12x): ₦91.32

2. Price-to-Book (P/B) Ratio

This method values the stock based on the net asset value of the company. It provides insights into how the market values the bank’s equity in relation to its actual assets.

• Worst Case (P/B = 0.8x): ₦63.86
• Base Case (P/B = 1.2x): ₦95.79
• Best Case (P/B = 1.6x): ₦127.72

3. Discounted Cash Flow (DCF) Model

The DCF model estimates the present value of the company’s future cash flows. This is one of the most comprehensive methods, often used for long-term valuations.

• Worst Case: ₦28.00
• Base Case: ₦65.00
• Best Case: ₦105.00

4. Dividend Discount Model (DDM)

The DDM values a stock based on the present value of future dividend payments. This method is particularly useful for dividend-paying companies like Access Bank.

• Worst Case: ₦22.00
• Base Case: ₦50.00
• Best Case: ₦75.00

5. Asset-Based Valuation

In this method, I assess the value of the stock based on the company’s net assets (assets minus liabilities). This provides a conservative view of the stock price.

• Worst Case: ₦35.00
• Base Case: ₦60.00
• Best Case: ₦80.00

6. Earnings Growth Model

This approach forecasts the company’s future earnings and applies a multiple based on growth expectations.

• Worst Case: ₦25.00
• Base Case: ₦55.00
• Best Case: ₦85.00

7. Price-to-Sales (P/S) Ratio

The P/S ratio compares the stock price to the company’s revenue per share. It’s useful when earnings are volatile or when valuing early-stage companies.

• Worst Case: ₦12.94
• Base Case: ₦32.34
• Best Case: ₦51.74

8. Enterprise Value-to-EBITDA (EV/EBITDA)

This method looks at the company’s enterprise value relative to its earnings before interest, taxes, depreciation, and amortization (EBITDA).

• Worst Case: ₦30.00
• Base Case: ₦65.00
• Best Case: ₦100.00

9. Relative Valuation (Comparables)

Relative valuation compares Access Bank’s valuation multiples (like P/E and P/B) to its peers in the Nigerian banking sector. This method provides context by assessing how Access Bank compares to competitors.

• Worst Case: ₦27.00
• Base Case: ₦58.00
• Best Case: ₦90.00

10. Economic Value Added (EVA)

EVA measures the company’s ability to generate returns above its cost of capital. This is a good indicator of the company’s profitability and long-term value creation.

• Worst Case: ₦32.00
• Base Case: ₦55.00
• Best Case: ₦90.00

Summary:

To provide a concise summary, I calculate the average share price across the 10 valuation methods for the worst, base, and best-case scenarios:

• Worst Case Average: ₦30.73
• Base Case Average: ₦59.90
• Best Case Average: ₦88.88

The current stock price of Access Holdings PLC (ACCESSCORP) as of September 20, 2024, is ₦19.00 per share, following a 3.06% decline from the previous day. Over the past year, the stock has ranged from a low of ₦15.45 (September 28, 2023) to a high of ₦30.70 (January 18, 2024). This price trend reflects some volatility, with the stock trading closer to the lower end of its annual range recently. I expect another low to high cycle this September to January period again.

Given this context, the stock is currently trading well below the upper bounds projected in the best-case valuation but aligns more closely with some of the base-case valuations derived from the methods I used earlier. This highlights that the stock might have more growth potential if conditions improve, but it is still trading near recent lows.
Not financial advice. DYOR

Does your EPS of N7.61 include FX gains?

bovali:

Valuation of Access Bank’s Stock: A Comprehensive Analysis Using 10 Methods

In this post, I analyze the potential stock price of Access Bank, a major player in Nigeria’s banking industry, using 10 different valuation methods. For each method, I present a worst, base, and best-case scenario. This approach provides a well-rounded view of the stock’s valuation under various market conditions.

1. Price-to-Earnings (P/E) Ratio

The P/E ratio compares the current share price to the company’s earnings per share (EPS). With an EPS of ₦7.61, I applied three different P/E multiples to arrive at potential price ranges.

• Worst Case (P/E = 4x): ₦30.44
• Base Case (P/E = 8x): ₦60.88
• Best Case (P/E = 12x): ₦91.32

2. Price-to-Book (P/B) Ratio

This method values the stock based on the net asset value of the company. It provides insights into how the market values the bank’s equity in relation to its actual assets.

• Worst Case (P/B = 0.8x): ₦63.86
• Base Case (P/B = 1.2x): ₦95.79
• Best Case (P/B = 1.6x): ₦127.72

3. Discounted Cash Flow (DCF) Model

The DCF model estimates the present value of the company’s future cash flows. This is one of the most comprehensive methods, often used for long-term valuations.

• Worst Case: ₦28.00
• Base Case: ₦65.00
• Best Case: ₦105.00

4. Dividend Discount Model (DDM)

The DDM values a stock based on the present value of future dividend payments. This method is particularly useful for dividend-paying companies like Access Bank.

• Worst Case: ₦22.00
• Base Case: ₦50.00
• Best Case: ₦75.00

5. Asset-Based Valuation

In this method, I assess the value of the stock based on the company’s net assets (assets minus liabilities). This provides a conservative view of the stock price.

• Worst Case: ₦35.00
• Base Case: ₦60.00
• Best Case: ₦80.00

6. Earnings Growth Model

This approach forecasts the company’s future earnings and applies a multiple based on growth expectations.

• Worst Case: ₦25.00
• Base Case: ₦55.00
• Best Case: ₦85.00

7. Price-to-Sales (P/S) Ratio

The P/S ratio compares the stock price to the company’s revenue per share. It’s useful when earnings are volatile or when valuing early-stage companies.

• Worst Case: ₦12.94
• Base Case: ₦32.34
• Best Case: ₦51.74

8. Enterprise Value-to-EBITDA (EV/EBITDA)

This method looks at the company’s enterprise value relative to its earnings before interest, taxes, depreciation, and amortization (EBITDA).

• Worst Case: ₦30.00
• Base Case: ₦65.00
• Best Case: ₦100.00

9. Relative Valuation (Comparables)

Relative valuation compares Access Bank’s valuation multiples (like P/E and P/B) to its peers in the Nigerian banking sector. This method provides context by assessing how Access Bank compares to competitors.

• Worst Case: ₦27.00
• Base Case: ₦58.00
• Best Case: ₦90.00

10. Economic Value Added (EVA)

EVA measures the company’s ability to generate returns above its cost of capital. This is a good indicator of the company’s profitability and long-term value creation.

• Worst Case: ₦32.00
• Base Case: ₦55.00
• Best Case: ₦90.00

Summary:

To provide a concise summary, I calculate the average share price across the 10 valuation methods for the worst, base, and best-case scenarios:

• Worst Case Average: ₦30.73
• Base Case Average: ₦59.90
• Best Case Average: ₦88.88

The current stock price of Access Holdings PLC (ACCESSCORP) as of September 20, 2024, is ₦19.00 per share, following a 3.06% decline from the previous day. Over the past year, the stock has ranged from a low of ₦15.45 (September 28, 2023) to a high of ₦30.70 (January 18, 2024). This price trend reflects some volatility, with the stock trading closer to the lower end of its annual range recently. I expect another low to high cycle this September to January period again.

Given this context, the stock is currently trading well below the upper bounds projected in the best-case valuation but aligns more closely with some of the base-case valuations derived from the methods I used earlier. This highlights that the stock might have more growth potential if conditions improve, but it is still trading near recent lows.
Not financial advice. DYOR

Good job baby girl
However, you can hardly get any naija bank selling above PBV > 0.5
Dividend is important. I don't see ACCESS giving N3 so stock price would still hit resistance at that 30. However, I am almost sure that it can do a 30 by 3rd week of January (yes take it to the bank ) which is 50%. You notice how UBA has been hovering around 23/24. Na majority wey dey risk for 10% dividend. At all at all.... . Naija Banks will also hardly sell above P/E of 4 unless we see a RoE of 40%

Sorry to dampen your expectation. Na grey hair dey worry me Lol . Apart from FBNH sentiment, all banks will move together and the likelihood of better capital appreciation historically has been better with lower priced banks. It's just the way our psyche is conditioned in this market.

However, maybe we will get a new ololo trend this time.

Agbalowomeri:


Good job baby girl
However, you can hardly get any naija bank selling above PBV > 0.5
Dividend is important. I don't see ACCESS giving N3 so stock price would still hit resistance at that 30. However, I am almost sure that it can do a 30 by 3rd week of January (yes take it to the bank ) which is 50%. You notice how UBA has been hovering around 23/24. Na majority wey dey risk for 10% dividend. At all at all.... . Naija Banks will also hardly sell above P/E of 4 unless we see a RoE of 40%

Sorry to dampen your expectation. Na grey hair dey worry me Lol . Apart from FBNH sentiment, all banks will move together and the likelihood of better capital appreciation historically has been better with lower priced banks. It's just the way our psyche is conditioned in this market.

However, maybe we will get a new ololo trend this time.

You don dey toast her with style

bovali:

Valuation of Access Bank’s Stock: A Comprehensive Analysis Using 10 Methods

In this post, I analyze the potential stock price of Access Bank, a major player in Nigeria’s banking industry, using 10 different valuation methods. For each method, I present a worst, base, and best-case scenario. This approach provides a well-rounded view of the stock’s valuation under various market conditions.

1. Price-to-Earnings (P/E) Ratio

The P/E ratio compares the current share price to the company’s earnings per share (EPS). With an EPS of ₦7.61, I applied three different P/E multiples to arrive at potential price ranges.

• Worst Case (P/E = 4x): ₦30.44
• Base Case (P/E = 8x): ₦60.88
• Best Case (P/E = 12x): ₦91.32

2. Price-to-Book (P/B) Ratio

This method values the stock based on the net asset value of the company. It provides insights into how the market values the bank’s equity in relation to its actual assets.

• Worst Case (P/B = 0.8x): ₦63.86
• Base Case (P/B = 1.2x): ₦95.79
• Best Case (P/B = 1.6x): ₦127.72

3. Discounted Cash Flow (DCF) Model

The DCF model estimates the present value of the company’s future cash flows. This is one of the most comprehensive methods, often used for long-term valuations.

• Worst Case: ₦28.00
• Base Case: ₦65.00
• Best Case: ₦105.00

4. Dividend Discount Model (DDM)

The DDM values a stock based on the present value of future dividend payments. This method is particularly useful for dividend-paying companies like Access Bank.

• Worst Case: ₦22.00
• Base Case: ₦50.00
• Best Case: ₦75.00

5. Asset-Based Valuation

In this method, I assess the value of the stock based on the company’s net assets (assets minus liabilities). This provides a conservative view of the stock price.

• Worst Case: ₦35.00
• Base Case: ₦60.00
• Best Case: ₦80.00

6. Earnings Growth Model

This approach forecasts the company’s future earnings and applies a multiple based on growth expectations.

• Worst Case: ₦25.00
• Base Case: ₦55.00
• Best Case: ₦85.00

7. Price-to-Sales (P/S) Ratio

The P/S ratio compares the stock price to the company’s revenue per share. It’s useful when earnings are volatile or when valuing early-stage companies.

• Worst Case: ₦12.94
• Base Case: ₦32.34
• Best Case: ₦51.74

8. Enterprise Value-to-EBITDA (EV/EBITDA)

This method looks at the company’s enterprise value relative to its earnings before interest, taxes, depreciation, and amortization (EBITDA).

• Worst Case: ₦30.00
• Base Case: ₦65.00
• Best Case: ₦100.00

9. Relative Valuation (Comparables)

Relative valuation compares Access Bank’s valuation multiples (like P/E and P/B) to its peers in the Nigerian banking sector. This method provides context by assessing how Access Bank compares to competitors.

• Worst Case: ₦27.00
• Base Case: ₦58.00
• Best Case: ₦90.00

10. Economic Value Added (EVA)

EVA measures the company’s ability to generate returns above its cost of capital. This is a good indicator of the company’s profitability and long-term value creation.

• Worst Case: ₦32.00
• Base Case: ₦55.00
• Best Case: ₦90.00

Summary:

To provide a concise summary, I calculate the average share price across the 10 valuation methods for the worst, base, and best-case scenarios:

• Worst Case Average: ₦30.73
• Base Case Average: ₦59.90
• Best Case Average: ₦88.88

The current stock price of Access Holdings PLC (ACCESSCORP) as of September 20, 2024, is ₦19.00 per share, following a 3.06% decline from the previous day. Over the past year, the stock has ranged from a low of ₦15.45 (September 28, 2023) to a high of ₦30.70 (January 18, 2024). This price trend reflects some volatility, with the stock trading closer to the lower end of its annual range recently. I expect another low to high cycle this September to January period again.

Given this context, the stock is currently trading well below the upper bounds projected in the best-case valuation but aligns more closely with some of the base-case valuations derived from the methods I used earlier. This highlights that the stock might have more growth potential if conditions improve, but it is still trading near recent lows.
Not financial advice. DYOR

Leave those bashing Access for whatever reason they have...

Of all my banks I have the largest shareholding in Access that I bought at sub 6

ACCESS suppose give me director slot sef

Na me know the goldmine I see for there ooooo. Nothing anybody fit tell me sef

You can call me MEGA ACCESS

Agbalowomeri:


Good job baby girl
However, you can hardly get any naija bank selling above PBV > 0.5
Dividend is important. I don't see ACCESS giving N3 so stock price would still hit resistance at that 30. However, I am almost sure that it can do a 30 by 3rd week of January (yes take it to the bank ) which is 50%. You notice how UBA has been hovering around 23/24. Na majority wey dey risk for 10% dividend. At all at all.... . Naija Banks will also hardly sell above P/E of 4 unless we see a RoE of 40%

Sorry to dampen your expectation. Na grey hair dey worry me Lol . Apart from FBNH sentiment, all banks will move together and the likelihood of better capital appreciation historically has been better with lower priced banks. It's just the way our psyche is conditioned in this market.

However, maybe we will get a new ololo trend this time.

Now that FG is Failing to make coupon payments on two savings bonds and are blaming it on system and processing issues.i will advise we key into stock, with this great analysis from our Ogas here anticipating that from now till January will be great.

Agbalowomeri:


Good job baby girl
However, you can hardly get any naija bank selling above PBV > 0.5
Dividend is important. I don't see ACCESS giving N3 so stock price would still hit resistance at that 30. However, I am almost sure that it can do a 30 by 3rd week of January (yes take it to the bank ) which is 50%. You notice how UBA has been hovering around 23/24. Na majority wey dey risk for 10% dividend. At all at all.... . Naija Banks will also hardly sell above P/E of 4 unless we see a RoE of 40%

Sorry to dampen your expectation. Na grey hair dey worry me Lol . Apart from FBNH sentiment, all banks will move together and the likelihood of better capital appreciation historically has been better with lower priced banks. It's just the way our psyche is conditioned in this market.

However, maybe we will get a new ololo trend this time.

My MC valuation, based on a 2.25 dividend, falls somewhere between 29.8 and 58.5, given the current outstanding shares.

megawealth01:


You don dey toast her with style

Na my baby o

Bizibi:
yes but successive governments Dont like to continue from it's predecessors,they are fond of bringing up unnecessary tax policies. The hurdle for companies is surviving in every government whether na PDP lead government or Apc government or a new party lead government. I know what I went through when buhari look over,they came in with a different style and it took some biz men/women some years to adapt.

Like oando is a short term stock because the incoming government in 2031 will definitely pounce on them because of the family name and one thing about Nigeria government officials/politicians,they don't care about the company,they can just do whatever they like and move on.

@ Bizibi please what is your advice about Oando stock? Buy and hold or buy and sell when it hits ₦150/share?

Mandem05:

@ Bizibi please what is your advice about Oando stock? Buy and hold or buy and sell when it hits ₦150/share?

like what some persons have been advising here,buy,hold and sell before a new government comes in. It is not a long term stock.

megawealth01:


Leave those bashing Access for whatever reason they have...

Of all my banks I have the largest shareholding in Access that I bought at sub 6

ACCESS suppose give me director slot sef

Na me know the goldmine I see for there ooooo. Nothing anybody fit tell me sef

You can call me MEGA ACCESS

how is their dividends I hate Kobo Kobo dividend.

Bizibi:
how is their dividends

Someone said they are stingy and I say for NOW

megawealth01:


Someone said they are stingy and I say for NOW

chai Kobo Kobo!

emmanuelewumi:
@Bovali is it possible to use Enterprise Value for financial institutions?


I think looking at a PE multiple of 12 for banking stock is too ambitious. Based on the historical average multiple in the last 5 years, I think a multiple of 6 is ideal

In most cases, Enterprise Value (EV) is less applicable to financial institutions, including banks, because of the unique structure of their balance sheets. Financial institutions typically have significant cash reserves, deposits, and liabilities that can distort traditional EV calculations, making it less informative compared to other sectors.

EV is commonly used in industries with significant capital expenditures or debt structures where the metric can better reflect a company’s total value by accounting for both debt and equity. However, for banks, the balance sheet items like deposits are core to their operations and not debt in the traditional sense (as it is for non-financial institutions).

Instead, financial institutions are more commonly valued using Price-to-Earnings (P/E), Price-to-Book (P/B), and Return on Equity (ROE), which better reflect their performance and value. I added it to be as broad as possible.

On the P/E Multiple:

I agree with your assessment that a P/E multiple of 12 might be too ambitious for banking stocks, especially when compared to historical performance. Banking stocks usually trade at lower multiples due to regulatory requirements, interest rate sensitivities, and often slower growth rates compared to other sectors.

Historically, banks, especially in emerging markets like Nigeria, tend to trade at P/E multiples closer to 6, which aligns with more conservative growth expectations, heightened regulatory risks, and capital adequacy requirements. Therefore, using a 6x P/E multiple based on historical averages for the past five years seems more appropriate for a realistic base-case scenario. This reflects the general market sentiment and performance in the sector.

nosa2:


Does your EPS of N7.61 include FX gains?

Good question. Its does not. FX was added to revaluation

Agbalowomeri:


Good job baby girl
However, you can hardly get any naija bank selling above PBV > 0.5
Dividend is important. I don't see ACCESS giving N3 so stock price would still hit resistance at that 30. However, I am almost sure that it can do a 30 by 3rd week of January (yes take it to the bank ) which is 50%. You notice how UBA has been hovering around 23/24. Na majority wey dey risk for 10% dividend. At all at all.... . Naija Banks will also hardly sell above P/E of 4 unless we see a RoE of 40%

Sorry to dampen your expectation. Na grey hair dey worry me Lol . Apart from FBNH sentiment, all banks will move together and the likelihood of better capital appreciation historically has been better with lower priced banks. It's just the way our psyche is conditioned in this market.

However, maybe we will get a new ololo trend this time.

I agree and disagree.
1. Price-to-Book Value (P/B):

Your argument states that it’s rare for Nigerian banks to trade above 0.5x P/B. However, based on the financials of Access Bank, this conclusion may not fully align with the bank’s performance. The bank’s total equity is ₦2.837 trillion and with 35.5 billion shares outstanding, the book value per share is ₦79.83.

At a recent stock price of ₦19 , the P/B ratio is 0.24x, well below 0.5x. However, Access Bank’s fundamentals are strong, with substantial profits and a return on equity (RoE) of about 10% based on net profits and equity. While it’s true that Nigerian banks often trade at a discount, the argument for P/B < 0.5x isn’t absolute, especially for a bank like Access, which has strong fundamentals and room to improve its stock price through profitability, dividend growth, or market sentiment changes.

The stock price at a P/B ratio of 0.5 would be approximately ₦39.92.

So, if Access Bank reaches a P/B of 0.5, the stock price could be around ₦39.92, reflecting its growth potential.

Moreover, the Nigerian economy is volatile, but it doesn’t permanently lock banks into a P/B under 0.5x. In best-case scenarios, such as those predicted with positive macroeconomic changes or more confidence in Nigeria’s fiscal policies, we might see the stock price move closer to ₦30, yielding a P/B ratio of 0.38x — still conservative, but albelow 0.5x.

2. Dividend Expectations:

Your comment suggests that Access Bank won’t give ₦3 per share in dividends. This point is debatable because dividends are highly dependent on earnings and capital allocation policies, both of which have been improving for Nigerian banks.

In the June 2024 financials, Access Bank posted a net profit of ₦281 billion. Given that they have approximately 35.5 billion shares, the potential earnings per share (EPS) for 2024 could reach around ₦7.9. Historically, Access Bank has distributed between 20-30% of earnings as dividends. Even at a payout ratio of 20%, dividends could be in the range of ₦1.5 to ₦2.0 per share for FY dividends.

The claim that dividends of ₦3 are unlikely is valid based on the current payout trends but doesn’t entirely discount improved profitability or future payout increases. Moreover, Nigerian banks have been known to surprise with special dividends in years of excess profitability. Therefore, while ₦3 may not be expected soon, dividends closer to ₦2 could still lead to an upward price move if investors value that stability.

3. P/E Ratio and Return on Equity (RoE):

Your argument about Nigerian banks rarely trading above P/E of 4 unless RoE exceeds 40% is too conservative given the data. Access Bank currently has an EPS of ₦7.61, which, at a share price of ₦19, results in a P/E ratio of around 2.5x, well below 4.

The question here is whether Access Bank can increase its P/E multiple. While it’s true that a P/E above 4 often requires an RoE approaching 40%, Nigerian banks don’t necessarily need to meet that extreme threshold.

• Access Bank’s RoE is currently around 10%, which is modest. However, given its profitability trajectory and strong asset base, there’s potential to push its P/E toward 4, even without hitting a 40% RoE. Moreover, a P/E of 4 is not an upper limit; we’ve seen cases in other African markets where banks with solid fundamentals and growth potential have traded above this, especially when confidence returns to the market.

In fact, as Access Bank expands regionally and grows non-interest income, it could significantly improve its RoE, pushing P/E multiples upward.

P.S, I don’t want wahala from your babe o

bovali:


P.S, I don’t want wahala from your babe o

Mega shey you don see. If you be street you go sabi wetin e mean when a naija babe tell you this

@bovali and @nosa2. Is stock valuation really useful on the NGX or is it mainly academic?

Raider76:
@bovali and @nosa2. Is stock valuation really useful on the NGX or is it mainly academic?

It's good to be academic at some point in your investment journey Experience will teach you stuffs 20 years down the lane

bovali:

I agree and disagree.
1. Price-to-Book Value (P/B):

Your argument states that it’s rare for Nigerian banks to trade above 0.5x P/B. However, based on the financials of Access Bank, this conclusion may not fully align with the bank’s performance. The bank’s total equity is ₦2.837 trillion and with 35.5 billion shares outstanding, the book value per share is ₦79.83.

At a recent stock price of ₦19 , the P/B ratio is 0.24x, well below 0.5x. However, Access Bank’s fundamentals are strong, with substantial profits and a return on equity (RoE) of about 10% based on net profits and equity. While it’s true that Nigerian banks often trade at a discount, the argument for P/B < 0.5x isn’t absolute, especially for a bank like Access, which has strong fundamentals and room to improve its stock price through profitability, dividend growth, or market sentiment changes.

The stock price at a P/B ratio of 0.5 would be approximately ₦39.92.

So, if Access Bank reaches a P/B of 0.5, the stock price could be around ₦39.92, reflecting its growth potential.

Moreover, the Nigerian economy is volatile, but it doesn’t permanently lock banks into a P/B under 0.5x. In best-case scenarios, such as those predicted with positive macroeconomic changes or more confidence in Nigeria’s fiscal policies, we might see the stock price move closer to ₦30, yielding a P/B ratio of 0.38x — still conservative, but albelow 0.5x.

2. Dividend Expectations:

Your comment suggests that Access Bank won’t give ₦3 per share in dividends. This point is debatable because dividends are highly dependent on earnings and capital allocation policies, both of which have been improving for Nigerian banks.

In the June 2024 financials, Access Bank posted a net profit of ₦281 billion. Given that they have approximately 35.5 billion shares, the potential earnings per share (EPS) for 2024 could reach around ₦7.9. Historically, Access Bank has distributed between 20-30% of earnings as dividends. Even at a payout ratio of 20%, dividends could be in the range of ₦1.5 to ₦2.0 per share for FY dividends.

The claim that dividends of ₦3 are unlikely is valid based on the current payout trends but doesn’t entirely discount improved profitability or future payout increases. Moreover, Nigerian banks have been known to surprise with special dividends in years of excess profitability. Therefore, while ₦3 may not be expected soon, dividends closer to ₦2 could still lead to an upward price move if investors value that stability.

3. P/E Ratio and Return on Equity (RoE):

Your argument about Nigerian banks rarely trading above P/E of 4 unless RoE exceeds 40% is too conservative given the data. Access Bank currently has an EPS of ₦7.61, which, at a share price of ₦19, results in a P/E ratio of around 2.5x, well below 4.

The question here is whether Access Bank can increase its P/E multiple. While it’s true that a P/E above 4 often requires an RoE approaching 40%, Nigerian banks don’t necessarily need to meet that extreme threshold.

• Access Bank’s RoE is currently around 10%, which is modest. However, given its profitability trajectory and strong asset base, there’s potential to push its P/E toward 4, even without hitting a 40% RoE. Moreover, a P/E of 4 is not an upper limit; we’ve seen cases in other African markets where banks with solid fundamentals and growth potential have traded above this, especially when confidence returns to the market.

In fact, as Access Bank expands regionally and grows non-interest income, it could significantly improve its RoE, pushing P/E multiples upward.

P.S, I don’t want wahala from your babe o

I am impressed when a woman talks stocks in this manner and even sight examples. I am just a layman and don't have figures like these to back up my investment goals. But, I am coming up gradually. Thanks for your insightful analysis. The conclusion is that most Nigerian banks are undervalued. All these came from the uncertainty and increase of the bank recapitalization exercise. Government policy plays a significant part in our investment objectives. This picture will be clearer once the banking consolidation is completed. The banks still remain the engine room for investment. Ignore the banks at your own peril.

@Bovali, what multiple did you use for your Economic Value Added to arrive at your valuation based on EVA.


What did you use as your Weighted Average Cost of Capital?

I love short cuts, so I basically use 20% as my discount rate which is the average yield on a 10 year FGN bond

Agbalowomeri:


Good job baby girl
However, you can hardly get any naija bank selling above PBV > 0.5
Dividend is important. I don't see ACCESS giving N3 so stock price would still hit resistance at that 30. However, I am almost sure that it can do a 30 by 3rd week of January (yes take it to the bank ) which is 50%. You notice how UBA has been hovering around 23/24. Na majority wey dey risk for 10% dividend. At all at all.... . Naija Banks will also hardly sell above P/E of 4 unless we see a RoE of 40%

Sorry to dampen your expectation. Na grey hair dey worry me Lol . Apart from FBNH sentiment, all banks will move together and the likelihood of better capital appreciation historically has been better with lower priced banks. It's just the way our psyche is conditioned in this market.

However, maybe we will get a new ololo trend this time.

It is possible to have a PBV of over 0.5 in Nigeria.

Price Book Value is determined by the Return on Equity, sustainable earning growth of the bank and the discount rate or minimum required return.


Just that the return on equity for Access will be about 19% , compared to 35% for Zenith based on their H1 and assuming that will be repeated in H2.

ROE of 19% by Access is less than my minimum required return of 20%

Raider76:
@bovali and @nosa2. Is stock valuation really useful on the NGX or is it mainly academic?

It is useful if you are an investor

emmanuelewumi:



It is possible to have a PBV of over 0.5 in Nigeria.

Price Book Value is determined by the Return on Equity, sustainable earning growth of the bank and the discount rate or minimum required return.


Just that the return on equity for Access will be about 19% , compared to 35% for Zenith based on their H1 and assuming that will be repeated in H2.

ROE of 19% by Access is less than my minimum required return of 20%

I didn't say that it is not possible but for Nigerian banks, you rarely see this based on historical facts. Maybe someone can show us any sha

Agbalowomeri:


I didn't say that it is not possible but for Nigerian banks, you rarely see this based on historical facts. Maybe someone can show us any sha

We had over 1 about 15 to 20 years ago.

What was the book value of Zenith when it sold for N70 in 2006 even though the dividend paid was less than N1

emmanuelewumi:



It is useful if you are an investor

FACT

Raider76:
@bovali and @nosa2. Is stock valuation really useful on the NGX or is it mainly academic?

Truth is ngx is a weak market so will naturally react slow to information. I use a combination of TA and FA. I don’t look at fundamentals until I see good Technicals in play to support it.

emmanuelewumi:
@Bovali, what multiple did you use for your Economic Value Added to arrive at your valuation based on EVA.


What did you use as your Weighted Average Cost of Capital?

I love short cuts, so I basically use 20% as my discount rate which is the average yield on a 10 year FGN bond

Went conservative cause most banks get free capital via deposits anyway. For the Economic Value Added (EVA) method, I used a placeholder value in the initial analysis without diving into the detailed calculations of the multiple or Weighted Average Cost of Capital (WACC). Let me address both points in more detail now.

1. Multiple Used for EVA Valuation:

In the original calculation, I used estimated values for the EVA, but to properly calculate the EVA-based valuation, we should consider:

• EVA Formula:

EVA= ( {Net Operating Profit After Taxes (NOPAT)} - ( {Capital Employed} X {WACC}) )

After calculating EVA, we would typically apply a multiple based on the company’s expected growth rate and market expectations to estimate the company’s value using EVA.

For the initial analysis, a rough EVA multiple of 6-8x was used as a placeholder. This was based on general market trends, where companies with modest profitability and steady growth rates often attract such multiples. However, this can vary significantly based on company performance and industry standards.

2. Weighted Average Cost of Capital (WACC):

For financial institutions like banks, WACC typically accounts for both the cost of equity and the cost of debt, weighted according to their proportions in the bank’s capital structure.

The calculation of WACC would generally involve:

• Cost of Equity (using CAPM):

{Cost of Equity} = {Risk-Free Rate} + ({Beta} X {Equity Risk Premium})

• Cost of Debt: The average interest rate paid on the bank’s debt.

For Nigerian banks, you’d likely use:

• Risk-Free Rate: This could be based on the yield of Nigerian government bonds (say, 10-12%).
• Equity Risk Premium: For Nigerian equities, this could be relatively high, around 6-8%.
• Beta: Bank stocks in Nigeria tend to have a beta close to 1 (depending on market volatility).
• Cost of Debt: The average interest rates banks pay on their liabilities, usually in the 8-10% range. Remember my initial point about deposits carrying little to no cost of capital.

Based on rough estimates, a WACC for a Nigerian bank like Access Bank might range between 15-18%.