Post acquisition analysis: Access Bank and FCMB reflecting their fair value


Wednesday, January 22, 2014 5:14 PM / Research


A recent post acquisition analysis of Access Bank Plc and FCMB has shown that the stocks are currently witnessing low bargain on the Nigeria Stock Exchange (NSE), owing to the long run effect of the principle of fair value, which comes to play irrespective of (in)organic growth and the size of the balance sheet of a firm.


We would recall that the share price of Access Bank in 2013 increased greatly to N12.39k, this could be attributed to investor’s expectation of increased profitability from the bank, following its acquisition of Intercontinental Bank Plc in 2012 when its share price was N9.55k. In the same vein, FCMB which acquired Finbank Plc in 2012 has shown the same trend, as its price continues to trade between N6.00k and N4.00k, thereby reflecting its fair value irrespective of the acquisition.


It should be noted that the principle of fair value as defined in accounting and economics is a rational and unbiased estimate of the potential market price of a good, service, or asset. It takes into account such objective factors as: acquisition/production/distribution costs, replacement costs, or costs of close substitutes, actual utility at a given level of development of social productive capability, supply vs demand and subjective factors such as; risk characteristics, cost of and return on capital and individually perceived utility.



The post acquisition analysis of the price trend of Access Bank and FCMB revealed a weak bargain and sustained lacklustre trading pattern towards the stocks. This is a true reflection of the principle of fair value, as it seemed to have outweighed shareholders' loyalty significantly thereby causing the prices of the stocks to drop to their true value.

This analysis shows that the banks are yet to trade above the pre-acquisition price level despite the significant positive growth and increased optimism in the general market.

This further gives us a great concern, as the acquisition or the impressive (in)organic growth recorded in year 2012 by these firms are yet to translate to significant impact with respect to price appreciation- a pointer to unknown or underlying bearish posture of fundamentals of these firms as the principle of market fair value eventually dictates the price trend after the short euphoria rally.

Ironically, we observed that the balance sheet of these banks have grown tremendously between pre-acquisition and post-acquisition periods without similar trend in the share price of the firm- this further buttresses the unknown bearish fundamentals noted above. For instance, we observed that Access bank balance sheet had grown by 119.19% between 2010 and 2012 financial years but the share price plunged by -2.69% a significant negative divergence between the banks growth and share price growth.


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