Rating: BUY

Latest Dividend: N0.70
Current Market Price: N6.00
Year High: N6.57
Year Low: N4.83
Fair Value: N8.99
Equity Analyst:  Tunde Segun Jeariogbe

Introduction

• This report reviews the audited financials of United Capital for the full-year ended December 31, 2020, and compared same to similar numbers released for the corresponding period of 2019.
• This enabled us arrive at valuations, and projections, while comparisons were done accordingly.
• Our main objective of looking into this report is to help investors make informed decisions while positioning in the shares of United Capital Plc. We have therefore adopted a conservative valuation approach in our analysis.
• Generally, the full-year numbers are impressive, as each financial index looks good, vis-à-vis that of the comparable year.
• See below for comparison/analysis and ratio estimations of the released numbers.

• At the end of the 2020 financial year, the management of United Capital proposed a N0.70 final cash dividend, 40.00% better than the N0.50 paid in the comparable period of 2019.
• However, dividend payout ratio dropped by 10.86%, against that of the corresponding year. Note that, with the full-year numbers taken into consideration, the company would have paid investors 53.77% of its total earnings for the year, compared to the 60.32% paid in 2019.
• The said dividend is same as 11.02% yield of the share price of UCap on the exchange as of the time the result was made available to investors.
• We have therefore estimated a sustainable dividend growth rate of 14.78% for UCap. We note that the rate increased due to the improvement recorded over that of the corresponding year.

Company figures

• At the end of the period under review, the management of United Capital reported Total Revenue of N12.87 billion, same as 49.84% above the N8.59 billion reported at the end of the corresponding year (2019).
• Net Operating Income was estimated at N12.48 billion as against the N7.04 billion reported at the end of 2019.
• Personnel Expenses stood at N1.35 billion, 21.98% below the N1.73 billion used through the prior year.
• Other Operating Expenses amounted to N2.61 billion, representing 48.18% rise over the N1.76 billion reported in the comparable year.
• Thus, Total Operating Expenses is estimated at N3.96 billion, higher than the N3.49 billion used through 2019.
• At the end of the year, the management achieved a Profit before Tax of N7.81 billion, same as 60.57% above the N4.94 billion in the corresponding year.
• Tax Expenses allowance for the year is N136.49 million, versus N23.69 million in the comparable year.
• In other words, Profit for the period stood at N7.81 billion, as against the N5.75 billion in the corresponding year.

• Also impressive, was the N222.74 billion Total Assets, a 48.04% growth over the N150.46 billion recorded at the end of previous year.
• Total Liabilities on the other hand stood at N198.32 billion, as against N130.87 billion in the corresponding year; just as Cash & Cash Equivalents at the end of the year grew to N43.42 billion, from the N30.13 billion in 2019.
• Properties Plant and Equipment investments through the year stood at N565.82 million against N357.11 in 2019.
• Net Assets is estimated at N24.42 billion, same as 24.71% above the N19.58 billion in the corresponding year.
• Managed Funds at the end of the year was valued at N116.01 billion, versus N72.37 billion in the corresponding year.
• Other Borrowed Funds in the company’s books amounted to N72.66 billion, a 42.82% growth over the N50.87 billion in the comparable year.
• Retained Earnings is same as N21.60 billion versus N16.79 billion in the similar year.

Financial Strength/Solvency Ratios

• United Capital’s Total Debt Value is estimated as 89.03% of the Total Assets Value at the end of the year, similar to the 86.98% of the previous year, a trend which is in agreement with the structure of United Capital business model.
• Thus, Total Debt for the year is same as 811.91% of the Equity Value, showing that far more debts where used for servicing the company assets through the year compare to the level of equity.
• It is important to understand that Net Assets estimation at the end of the 2020 financial year is 10.97% of the company’s Total Assets valuation, a 15.76% drop when compared to the 13.02% in the corresponding year.
• Going by the estimated beta value of United Capital, one can easily conclude that the stock is fairly liquid and patronised.

• Pre-Tax Margin stood at 61.73%, up from the last estimate of 57.61% at the end of 2019 full-year business session, a growth in profitability between both years observed.
• Return on Equity stood at 31.98%, same as 25.93% growth when compared to the 25.39% in the corresponding year.
• Return on Assets equally grew by a marginal 3.51%, as against 3.31% in the corresponding year.
• See the table below for detailed profitability ratios and comparison.

Efficiency Ratios

• Operating Expenses is estimated at 30.82% of the Gross Earnings Value estimate for the year, an improvement of 24.29% in efficiency when compared to the 40.71% estimated from 2019 full year financial statistics.
• Total Revenue through the period is same as 5.78% of United Capital Total Assets Valuation, which is a 1.21% improvement in management efficiency within the two years observed.
• See below for other efficiency ratios:

Investment/Valuation Ratios

• At the end of 2020 full-year operating period, the management of United Capital earned N1.30 on each of its shares listed on the Nigerian Stock Exchange, a 57.06% improvement over the N0.83 earnings recorded in 2019.
• Total Comprehensive Income per share equally improved by 36.32% from the corresponding year’s estimate. The earnings stood at N1.31 from N0.96.
• Price Earnings Ratio for the period increased to 4.88x from 3.53x, confirming investors’ preference for the shares of UCAP.
• The said earnings produced an outstanding yield of 20.50% over the price of United Capital on the exchange as of when the result was released. Although this is a drop from that of the corresponding period’s yield, we maintain that the yield is quite attractive, especially since the drop is due to higher valuation on the exchange.
• The Book Value of United Capital is estimated at N4.07 at the end of the year, this is an improvement when compared to N3.26 at the end of the 2019 period.
• Indicating an academic over-valued status of United Capital shares on the floor of the exchange is the estimated Price to Book Value ratio at above unity.

Valuation

While valuing United Capital, we choose a highly conservative method, seeking to present a very secure price to our readers. Thus, we have valued each unit of United Capital at N8.99, which is clearly above both the Book Value and the company’s market price on the exchange. Hence, we have Rated United Capital a Buy.