Access Bank Offer: Buyer Beware!!!

[Lymbic3]

Guys my apologies for the delay in posing this. A lot has happened which some or most of you are already aware of.

The Access offer, as with all such offers, is being touted as an excellent investment. Have you come across any stockbroking firm that has said any such public offer isn't a good buy? I haven't!

Well the head of the analysts team with CSL a reputable stockbroking firm, has recently sacked this analyst and distanced themselves from his report. Find Rogue Report attached below!

August 15, 2007



DEAR VALUED READER



RE: EQUITY REPORT ON ACCESS BANK PLC



We write to withdraw the Equity Research Publication dated 14 th August 2007 prepared by Jude Fejokwu and published without the authorization of CSL Stockbrokers Limited.



The contents of the report are incorrect, unfounded and without basis. Indeed the entire report is entirely attributable to the writer and in the professional opinion of CSL Stockbrokers does not represent in any way the true position of affairs of Access Bank Plc. We urge you to please disregard the report in its entirety.



CSL Stockbrokers Limited admits regrettably that the report was not vetted or reviewed in line with our internal practice before publication by the writer. This unfortunate breakdown has brought significant embarrassment to our firm's reputation built over several years.



Our institution is particularly embarrassed as Access Bank Plc is a prized client for CSL Stockbrokers Limited and indeed the entire FCMB Group.



FCMB Capital Market is one of the Issuing Houses/Underwriters and CSL Stockbrokers is a stockbroker to Access Bank's on-going successful public offer. Our Group endorses totally the credibility of the Bank, its Board of Directors and Management Team and will in no way allow their exemplary efforts at establishing a First Class Bank to be diminished by a "rogue" analyst.


The said analyst has since been summarily dismissed from the employment of CSL and steps will be taken to ensure that there is no re-occurrence of this unfortunate event.


We have and continue to apologize to the Bank and all its shareholders for our mistake. The correct report on Access Bank Plc will be published within the current week.


Once again we regret any inconvenience caused by this report.



Thank you.

This is what Proshare had to say in an email to all subscribers, on behalf of CSL:

EDITORS NOTE
Dear xxx,

EDITORS NOTE


MARKET NEWS:
*Dangote Flour will most likely now be a Private Placement due to the non-agreement of a fair value for the offer between SEC and the company. The PP should take place in the next few weeks.
*Unity Bank Plc is planning to do a Bonus + Dividend...
*Bank PHB will be coming to the market in October 2007 while FCMB and Fidelity Bank Plc will approach the market in September 2007.


EDITORIAL
Investors who received the CSL Equity Research Report on Access Bank Plc on Wednesday wrote in to express concern about the contents of the report and its variance with informed analysis published by other credible fund management firms and Invest IQ/Proshare.

We are able to confirm today that CSL Stockbrokers Ltd, one of the nation’s leading research & analyst services firm have taken the moral high ground and issued a ‘rebuttal’ disclaiming the report issued by its analyst (see opposite section).

This is highly commendable and goes a long way to confirm their commitment to due process and professionalism as they equally intend to issue a quality assured report that reflects their belief and understanding of the public offer by Access Bank Plc for which they, through the FCMB Capital Market operations are a co-issuing house and underwriters to the offer.

This has been both embarrassing and disturbing for its management as the firm has always considered ACCESS BANK PLC a prized client and value stock. CSL have over the years demonstrated its ability to remain objective on reports issued by it and intend to continue to do so.

Access Bank Plc's Public offer has attracted a wholesome commendation by all analyst firms and fund managers based on the excellent track record of the management and board as evidenced in its net bid position in the secondary market, based on the belief that its shares will be oversubscribed.

We share the same belief.

This development will go a long way to re-establish the value investors place on analyst reports and the increasing demand for the highest quality assurance and process validation of reports issued by analyst companies on quoted stocks.

We re-affirm our opinion on the Access Bank Plc stock and encourage investors to ignore the ‘unfortunate’ lapse that occurred in this case.

Should there be any investor seeking to clarify his/her decision on the stock, we encourage you to write in to Proshare vide analyst@proshareng.com or send an e-mail directly to CSL via adetola.odukoya@firstcitygroup.com

For further information on all analyst reports issued on Access Bank Plc, kindly go to Analyst Report section or simply visit www.proshareng.com/blog to download for your personal review.

Thank you.

xxxxxxxxxxxxxx
Managing Director

We will publish the CSL revised report later today.

An analyst who started a thread on Nairaland before the existence of the rogue report had this to say: (But you'll get a better understanding by going through the thread)

http://www.nairaland.com/nigeria?top...474#msg1351474

In actual fact, all the response in this forum is quite impressive. But i have little analysis to make and i believe it will go a long way in assisting any prospective investor to make a good decision.

BEWARE OF SHENANIGHAN ACCOUNTING.

Let me remind you that sometimes ago, Access Bank did REVERSE SPLIT where share price were doubled and the No of shares reduced!

The logic behind this is that, the bank had the decision of going to market and as at that time the share price was about N6.5k per unit of share. With this lower price, the bank would not be able to raise required fund at the DESIRED PRICE by the management!

Hence, the decision to embark on REVERSE SPLIT which now bring about ARTIFICIAL increase in the price of stock to N13.00 Most investors were not aware of this and people started rushing the share thinking that the price appreciated for N6.5 to N13. In effect, forces of Demand and Supply push the price to N19 or thereabout.-------------------------------

Reason for all this, is that the share of the company is OVER PRICED, (i have the proof but could not post it)

Secondly, the Bank does not believe in its FUTURE PROFIT GENERATION. This is evidence from the recent QUALIFIED financial statement of the bank. The auditors Report was QUALIFIED 'EXCEPT FOR'--- The detail is that, the Goodwill according to Law is supposed to be written off over 5yrs, Access Bank management embarked on SHENANIGHAN because the future is not too bright and decided to write off the expenses now as against yearly written off which will have negative impact on the Below the line result posted for those year. (I Have detailed report of the analysis).

While comparing this with the projected profit and loss of the bank for the next five years,-------- Reverse the ONE-TIME charge of Goodwill and spread it against the projected earnings for the next five years, you will come to conclusion that ----------------- May God help investors in this country.

In a nutshell, ACCESS BANK SHARE IS NOT A GOOD BUY!

Goodday all

Another analyst had this to say:

http://www.nairaland.com/nigeria/topic-72937.0.html

while i appreciate all contributors to this thread, i must advise that we treat this information with utmost seriousness it deserves, though it is belated as millions of naira has been invested already. with ten 10 days to go, we can still save some coins.

As an AUDITOR myself, the first question to ask is: Is the banks audited accounts truly QUALIFIED? If it was, did the management disclose this in the PROSPECTUS?

Am sure it was not, else IBTC and FSDL would not knowingly recommend it to the public. by retaining Goodwill in the books in contravention to GAAP, the bank was able to overstate both profit and assets to the value of the goodwill.

2. the poster quoted the reporting accountants (PWC) report, was that quotation true? if true then the bank MUST have been cooking up books to the detriment of the shareholders and the investors.

3. On the Audit Committee, it is not only MORALLY UNACCEPTABLE for both the MD and DMD to be part of the committee but also a negation of the tenets of EFFECTIVE GORVENANCE. While the CAMA 1990 requires minimum of 3 shareholders and 3 directors as members of the committee, it was not envisaged that the MD and DMD whose Activities are under SCRUTINY would be members of the committee. IT SHOWS A GREAT CONTROL LAPSE INCAPABLE OF FORSTALLING AND PREVENTING ANY MANAGEMENT FRAUD AND IRREGULARITY.

4. Given the above, i have always posited that the Nigerian Stock market(NSM) is not EFFICIENT (See my thread: is the stock market truly efficient?). the share price does not include all known information as it ought to, hence the NSM is RISKY!!!.

5. To the poor analyst that was sacked for releasing this info, that's the price you pay for DISCLOSING EXECUTIVE SECRET. take heart, TIME WILL DEFINITELY VINDICATE YOU!!!

[NewNaijaMan]

Lymbic3,

What's your take on this?

Is their validity to the original CSL report or is CSL just protecting the "Lagos boys network" and their “Valued client" - Access bank"

I'm also curious what’s the word on Broad Street. Do other stockbrokers, fund management houses value independent research or are they all against the “rogue analyst” for attempting to spoil their party.

In America, this analyst could sue both CSL and Access and get a heavy pay day. In Nigeria, I wonder if he has permanently jeopardized his job prospects on Broad Street. What say you?

[Lymbic3]

Lymbic3,

What's your take on this?

Is their validity to the original CSL report or is CSL just protecting the "Lagos boys network" and their “Valued client" - Access bank"

I'm also curious what’s the word on Broad Street. Do other stockbrokers, fund management houses value independent research or are they all against the “rogue analyst” for attempting to spoil their party.

In America, this analyst could sue both CSL and Access and get a heavy pay day. In Nigeria, I wonder if he has permanently jeopardized his job prospects on Broad Street. What say you?

As with all things Nigerian, you have to draw your own conclusions based on the info or data at your disposal. Cadbury cooked their books, but does that make their fundamentals unsound? This would depend on the individual investor. I would consider the fact that babies and adults continue to consume their products and are not concerned with their bank balance or financial shenanigans. Therefore as an investor I would watch their stock an look for the right entry point. This is how I would also view Access bank and Nigeria as a whole!

We must always consider the naija factor! Anything goes for now and life moves on. We have a president by selection. Life moves on. I guess as they say, when life gives you lemons, you make lemonade.

This is what someone had to say, which I consider valid:

My comments below focuses on the investment risk section of the report:

Financial Shenanigans?

1. Goodwill:
I want to believe the Jude’s comment on the alleged “cooking the books” relates to the treatment of Goodwill. The treatment of the goodwill was noted in the Accountant’s Report in the Prospectus and is the only reason for the qualified opinion. The relevant section of CAMA 1990, states that
“goodwill acquired by a company shall be reduced by provisions for amortization calculated to write off that amount systematically over a period of five years or less as may be determined by the directors of the company”.

CAMA’s intent in this provision was to prevent companies from keeping bloated intangibles/goodwill in the balance sheet by imposing a fiscal period limit on company’s carrying goodwill in their books. At the discretion of Access Bank’s director, Access Bank may elect to write off goodwill immediately or amortize over a period of time no more than 5 year. In my opinion, Access Bank’s decision to write-off the remaining goodwill in 2007 rather than amortize over a period of five years does not contravene the CAMA 1990.

However, the account to which the goodwill was charged against is suspect and in my interpretation is the subject of the non-compliance with CAMA 1990, which in Jude’s perspective tantamount to “cooking the books”. Jude probably would not have had any cause to sound the alarm had Access bank written off the N6.59B goodwill amount against its N8.04B 2007 profit before tax (Needless to say the stock would have taken a serious beating). Instead, the Bank’s management wrote off goodwill against shareholders fund by creating a balance sheet account called “Special Reserve Account”. An amount equal to the outstanding goodwill balance of N6.59B was moved from the Share Premium Account into the Special Reserve Account that the goodwill was subsequently charged against.

The aforesaid begs a question to those accountants/auditors familiar with Nja’s accounting rules - Are there other provisions in the CAMA 1990 or other accounting pronouncement higher in hierarchy to the CAMA that permits the writing-off of Goodwill against shareholders fund? If the answer is “No”. Then Access Bank has clearly violated accounting rules.

2. Forecast:
Forecasts are estimates. The underlying assumptions however, are expected to be reasonable. Potential investors in Access Bank needs to understand that actual results are likely to be different from the forecast since anticipated events may not occur as expected. Now, Access Bank has been growing steadily at an accelerating pace with 05vs06 and 06vs07 revenue at 78% and 109% respectively. Profit after tax have also return the same accelerating growth over the same period at 49% and 725% respectively. This translates into a compounded annual growth rate of 93% and 248% in revenue and PAT respectively from 2005 to 2007 period. With that history of growth and considering the renewed interest by the current Government to strengthen the economy even further, it is not unreasonable for an investor/owner (Aigboje and Herbert) to forecast a N41.8B and N9.4B in 2008 revenue and PAT (50% and 55% growth over 2007 ) respectively. We also have to appreciate that small capitalized companies have greater prospects for growth than large capitalized companies.

Market price Manipulation?
Needless to say that almost all companies on the NSE perform voodoo play on their stock in weeks preceding public offers. The inner workings of the voodoo price play are never transparent and require a credible regulatory body to ensure that transparency is entrenched. That said, earnings remain the strongest element that moves a stock. If you believe the Access Bank growth story then the voodoo price move up will end up being a bleep in the price chart. In the long run earnings performance will always skew the demand-supply equation for stocks and will reflect in its pricing. Voodoo price move is hardly sustainable. The question investors should be asking is whether or not the current stock valuation is reasonable in view of the earnings potential of Access bank.

Jude’s comment on price manipulation and the use of the word “cronies” is hardly professional. The reference to share reconstruction as artificial increase in price plays on the intelligence of some potential investors. If share reconstruction is to be called artificial price increase, then the prices mark down on Bonuses/split is an artificial price decrease. The reconstruction on Access Bank shares did not impact the value of the stock. It was a mere reduction in the outstanding shares and a corresponding increase in the price, the value of the holding remains intact and unchanged. It is a memorandum entry. Personally I am concerned about any company that reconstructs it shares as the act may signal problems with the company as it may be trying to attain key financial indicators like the EPS number for credit rating purposes. But to conclude the reconstruction is an artificial price increase may be misleading. There was no real price increase as a result of the reconstruction.

Reckless Business Decisions?
This is hardly reckless. It is commonplace to see companies unsuccessful in their bid to take over competitors. There is no reason for investors to lose sleep over companies attempting to increase shareholders value inorganically. There is absolutely nothing wrong with Access Bank becoming big via legitimate inorganic means.

My Conclusion
While it is important to analyze companies before committing funds to them we should not over analyze and lose sight of the fundamentals. The key issue with Access
Bank's statement of account is the treatment Goodwill. Appropriate penalty should be handed down to Access Bank to send a message to the industry, if the SEC thinks it has violated any of the CAMA 1990 provisions. But fundamentally there is nothing wrong with the Bank, and I believe that Access Bank (and the Banking industry in general) has excellent future prospects. Jude’s report certainly point potential investors’ attention to some issues before investing in Access Bank. But the language used in the report signals bias………more like a hit job on Access Bank’s IPO. This may very well not be his intent while writing the report.

[nawaya]

@CSL report pp 4 of 7

"We are also highly concerned as to how the bank was able to almost double its post-tax profit (88.33%) from its nine-month cumulative result to the full-year result (N3.23 billion to N6.083 billion.) The bank has not yet been able to explain this till date and we feel that yet to be fully ascertained maneuvers were utilized to generate this sudden turnaround."

What about this aspect (above quote) of the report? Doubling PAT from N3.23bn to N6.083bn within 3 months!! This seems like cooking the books to me - to earn N3bn in 9 months, and then N6bn by the 12th month without explanations?

[Fjord]

Haven't read the reports in any detail, but,did the bank pay out the doubled PAT in dividends? If not, what did they do with it. If yes, that could strongly indicate the books weren't cooked.

.