United Capital Earnings Nosedive on low NIM, Other Income, Bloating Provisions


Post Views: 168 The management of United Capital recently released its full year earnings report for 2017 financial year to the market and the numbers...

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The management of United Capital recently released its full year earnings report for 2017 financial year to the market and the numbers were a departure from what the company posted in 2016, as top and bottom lines were down. This resulted in a 30% dividend, following which the price was impacted negatively immediately it was released, before retracing up after two trading days before the recent markdown for the 35kobo final dividend.
The numbers came late to the market when compared to the release date for 2016, despite being an investment banking and securities trading company that knows the importance of forecast and projection to the investing community.
The impact of the improvement in the financial market especially capital market did not reflect much on the company’s performance, due to the low interest margin, slimmer ‘other incomes’ and increased provisions for impairment during the period. The investment company did not consolidate its solid performance in 2016 as quarterly earnings positions were below market expectation, a situation that may not be unrelated to the reawakening of primary market activities, following which many companies approached the primary market to source for funds by way of right issues in the period under review. There were also a few companies listed by introduction.
The company reported 5% decline in gross earnings at N2.45bn, from N2.54bn in 2016, attributable to weak investments and fee income from its core service of investments in equity and fixed securities. Other income dropped by to N29.21m from N30.98m in 2016. The huge impairment charges or losses during the year which led to provision of N147.46m from N52.87m in 2015, also was the high tax expenses of N426.76m against N181.42m in 2015, this was as a result of deferred tax. This situation impacted on its profit after tax which fell to N1.02bn from N1.45bn in 2016, representing a 40% drop.
The low quarterly earnings of the company for the year consolidated to low full-year earnings power and the dividend of 35 kobo for 2017. The stock is currently selling at 2.88 each, which is above its N2.28 current Book Value; just as the 6.02x Price/Earnings Ratio means investors’ waiting period has increased due to the weak earnings of the company.


The company’s under performance as revealed by the numbers posted shows that the ongoing economic and market recovery may have not impacted well enough on it earnings power. The 2017 numbers is therefore an indication of where United Capital is heading in this year, if the financial markets remain relatively stable and the economy moved to the growth path. Its Book Value at N2.79 and Profit Margin of 48.93% which ranks it among the highest in the market, even as it signifies that the stock is selling at a premium looking at the market value on the strength of its Price-Earnings-Ratio of 5.91x, which is relatively okay in the market and below the market’s Price/Earnings of 15x.
The company has consistently paid dividend since 2013, although it dropped by 30% in 2017 from 50 kobo in 2016.
Based on reality in the market and economic climate therefore, we advise investors in the stock to HOLD and observe market trend ahead of the Q1 2018 scorecard is expected next month.
United Capital Plc was established in 2002 to provide financial services such as investment banking, Trustees, Asset Management and Stockbroking and listed on the exchange in 2013. The company’s capacity building and technology-driven operations have supported its status as a one-stop Investment outlet.
It was then fully owned by United Bank for Africa Plc before being unbundled and listed on the Nigerian Stock Exchange (NSE), becoming a publicly owned company with its own shareholders. Its service delivery continues to help governments, corporate organisations and individuals to achieve their financial goals in the financial market has always supported its performance.
Its 17 years of active participation in helping to deepen the Nigerian Financial Market has afforded the company opportunities to participate in various offers, including financing of projects, financial advisory services, packaging of Initial Public Offerings, Right Issues, Debentures, as well as corporate and government bonds.


The company’s management team has demonstrated commitment and tenacity in plotting its affairs and effort to deliver value for all stakeholders as revealed by the scorecards in the last five years since becoming listed on the exchange. The earnings performance shows the calibre of its management and at the same time the strategic inputs in its products or services that remain the driving force behind the profitability level.
A SWOT Analysis of United Capital reveals the following about the company:
Strength: Its good brand name; bouquet of financial products that meet different classes of investor needs and good return on equity;
Weakness: The high cost of operation and high number of outstanding share in issue;
Opportunities: Good market share as the only listed investment banking and securities trading company, growth and technology driven capital market;
Threats: Unstable earnings/dividend and unstable economic policy.

Performance Analysis

The company’s statistics for the five-year period (2013-2017) reveals management’s commitment to meeting forecasts and projections, but recorded a decline in 2017, the first time the company is posting numbers that were below estimates since becoming listed. It resulted in an unstable dividend payout as a result of inconsistent growth in its earnings power.
Gross earnings for the period grew by 95.19% to N8.92bn from N4.57bn in 2013 after hitting highs of N9bn in 2016, also the profit level moved significantly, from N1.76bn in 2013 to N4.36bn after positing the highest earnings of N6.91bn in 2016, which represented a 147.73% increase for the period. This is very much in line with the commitment of management to grow earnings and manage cost as reflected in the profit margin for the review period, well above the 15% international standard.
The shareholders’ funds at N16.77bn, up from N8.38bn in 2013 reveals an uptrend over the past five years.
Also, it is noteworthy that the company has paid a total dividend of N1.65 per share since becoming quoted, a function of its earnings position for this period. Also, the recent two-year improvement in payout calls for more input to sustain the tempo by consistently growing the company’s earnings power.

Estimated Performance Ratios

The company’s performance ratios for the period under review shows that the amount earned by stakeholders were lower than the previous year to 73 kobo from 115 kobo in 2016, but higher than 29 kobo posted in 2013 when it became a public company, increasing yearly from 31 kobo in 2014; to 43 kobo in 2015, keeping a track record of growing its earnings before the recent decline.
Price Earnings ratio is fair and okay at the current estimate of 5.91x from low of 3.20x in 2016 and a high of 8.68x in 2013. The last full year EPS is a Yield of just 16.91% of the market price as of the release date. This simply signifies an improvement on the stock’s price performance against the posted numbers.
The company Book Value moved from N1.40 in five years to N2.79 as the share price equally moved from N1.30 as of listing date to N4.30, just as the enhanced Book Value for the period resulted from the company being able to improve and retain some of it its earnings which moved from N6.72bn in 2013 to N14.61bn, which supported shareholders’ funds tremendously. Putting this ratio and the market price of the stock side-by-side, signals opportunity for medium and long term investors; even as the profit margin over the years improved and remained above the internationally accepted level due to the effective cost control that had supported profit.