UCap: Lower Yields Impair Revenue, Attractive Dividend Stimulate Investment Interests

UCap: Lower Yields Impair Revenue, Attractive Dividend Stimulate Investment Interests

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Post Views: 198 By Imperial Asset Research 12M-2019 Performance Review UnitedCapital (UCAP) Plc, late on Tuesday,18 February 2020 released its audited...

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By Imperial Asset Research

12M-2019 Performance Review
UnitedCapital (UCAP) Plc, late on Tuesday,18 February 2020 released its audited financial statements for the period ended 31st December (12M-19) 2019. By this feat, it became the third listed company to have made available its audited financials to the Nigerian Stock Exchange (NSE) ahead of the 60-day deadline (after the due date).

Revenue weakens by lower yields on fixed securities
A close analysis of the results showed that gross revenue (GR)came in at₦8.59 billion, but it was 7.2% lower than ₦9.26billion achieved in 2018. The decline in revenue was due to lower returns on these line items – investment income, net trading income, and other income – amid lower yields on securities in the money and capital market and challenged business environment. However, fees and commission income went up by 2.6% and helped mitigate the effect of lower investment income on GR.

Cost line items were relatively mixed
Cost line items were relatively mixed in the year. With the exception of OPEX that went up 13.9% due to upsurge costs on-premises and equipment (+383.6%) and advertisement and branding (+222.5%), personal expenses dropped marginally by 0.4%. Impairment provision of ₦109.6 million was made compared to a writeback allowance of ₦266.9 million in 2018.

Profit line up amid deferred tax liability writeback
Due to lower revenue and relatively higher OPEX, pre-tax profit dropped by 20.4% to ₦4.95 billion y/y. However, the company had a deferred tax liability income of ₦23.7 million, resulting in a profit after-tax income of ₦4.97 billion. At this PAT income, earnings per share (EPS) of 83kobo was achieved, 15% higher than 72kobo in 2018, and it gives a Price/Earnings Ratio (PER) of 3.53x at the market price of ₦2.93 per share posted on Tuesday, 18 February 2020.

Dividend yield attractive to stimulate investment interest
The board of directors has indicated it will pay a dividend of 50kobo per share to its shareholders, 66.7% higher than 30kobo that was paid in 2018. At the proposed dividend, a shareholder stands to gain a dividend yield (return) of 17.1% (based on Tuesday’s closing market price of ₦2.93). Obviously, the UCAP dividend yield is above the existing 1-year NTB, 1-year OMO Bill, and 10-year FGN Bond’s yields of 5.9%, 14.5%, and 10.8% respectively.

We have a BUY recommendation on UCAP
We have an existing price target of ₦3.70 per share of UCAP. That gives an upside potential of 26.3% relative to Tuesday’s closing price of ₦2.93. We, therefore, maintain our BUY rating on the shares of UCAP.
•Imperial Asset Managers Limited is a Lagos based investment banking group For enquiries: research@imperialasset.com.ng

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