Company Analysis

# 2021Q1: Limping Numbers, Slow Start For New Union Bank Plc Management

Rating: Hold

Current Market Price: N5.65

**Loan to Debt Ratio**: 63.54%*Year High*: N6.10*Year Low*: N4.50*Fair Value*: N3.78*Equity Analyst*: Tunde Segun Jeariogbe

**Introduction**

- This report observes the first quarter financial numbers released for the period ended 30
^{th}March, 2021. We have compared the result with figures presented for the similar quarter of 2020 to establish growth, make projections, as well as valuation analysis. - Generally, there was a drop in the top-line, and a marginal growth in bottom-line.
- We note the strong decline in Total Comprehensive Income for the period compared to figure stated in the comparable period of 2020.
- This drop resulted from the Fair value losses incurred on financial assets through the first three month of the year.

**Company figures**

- Gross Earnings for the period is estimated at N36.793 billion, 16.21% below the N43.9909 billion reported at the end of 2020 first quarter.
- Interest Income dipped by 25.29% to N22.24 billion, as against the N29.78 billion reported in the corresponding period of last year.
- Interest Expenses is valued at N11.25 billion, a 24.10% downward adjustment from the N14.82 billion stated in its 2020Q1 numbers.
- Net Interest Income, therefore, dipped by 26.46% to N10.99 billion, versus N14.95 billion in the corresponding quarter.
- Operating Expenses was curtailed by a marginal 5.93% below the corresponding quarter as it is currently estimated at N15.42 billion, against N16.40 billion in the comparable quarter of 2020.
- Profit before Taxation is valued at N6.46 billion, 2.57% above the N6.29 billion achieved at the end of 2020 first quarter.
- Having accounted for tax expenses for the year, the management of Union Bank Plc reported N6.20 billion as Profit for the period, representing 3.19% above the corresponding quarter’s profit.
- As noted above, Total Comprehensive Income dipped by 58.80% to N843 million, versus N2.04 billion in the corresponding quarter.

- Total Assets valuation for the period stood at N2.15 trillion, 7.50% higher than the estimate at the end of 2020 first quarter.
- Total Liabilities on the other hand grew by 16.13% to N1.89 trillion versus N1.62 trillion in similar quarter of last year.
- Net Assets appreciated above the comparable quarter’s estimate by a marginal 4.23% to N265.16 billion, from N254.38 billion in 2020.
- Retained Earnings dipped by marginal 4.89% at N28.40 billion, versus N29.86 billion in the similar quarter of 2020.
- Total Customers Deposits at the end of 2020 first quarter business session improved by 24.97% to N1.12 trillion, as against N897.35 billion in 2020.
- Total Loan and Advances equally improved by 26.54% to stand at N712.58 billion, as against N563.14 billion in the first quarter of 2020.

**Financial Strength/Solvency Ratios**

- We have estimated the Debt Ratio at 0.87x same as an 8.02% increase over the corresponding quarter’s estimate. In other words, the Total Liabilities estimate for the period is the same as 87.70% of Total Assets valuation. Note that Total Deposits was added to the Liabilities figure used in the estimate.
- We also ascertained that the Total Debt for the period can replicate Equity 7.13 times, an improvement on the 6.40 times replicate estimated for 2020.
- Total Equity was estimated at 12.30% of the Asset Value at the end of the period, below the 3.04% estimated in 2020.
- We have estimated a 0.95 Beta value for Union Bank Plc shares, which is below the average industry Beta of 1.11.

**Profitability Ratios**

- Pre-Tax Margin rose by 17.56% from the corresponding period’s estimate of 14.34% at the end of 2020 first quarter.
- Interest Expense figure posted for the year is the same as 30.58% of the Estimated Gross Earnings figure; which is a 9.43% drop from the previous quarter’s estimate of 33.77%
- Return Achieved on Average Equity used through the quarter was estimated at 2.34% this is below the 2.37% return achieved in 2020 first quarter.
- See the table below for detailed profitability ratios and comparison:

**Efficiency Ratios**

- Operating Expenses is estimated at 41.93% of the Gross Earnings Value estimate for the period, this is an improvement in efficiency when compared to the 37.35% estimated from 2020 first quarter financial statistics.
- On the other hand, Gross Earnings was estimated at 1.71% of Total Assets, which is a 22.05% drop in efficiency, when compared to estimates from the corresponding quarter’s estimate.
- Total Loan to Deposit Ratio achieved at the end of the quarter is same as 63.54% up from the 62.76% achieved in 2020 first quarter. We note that this is slightly below the CBN mandated 65% for all financial institutions.

**Investment/Valuation Ratios**

- Profit made on each unit of Union Bank shares at the end of the 2021 first quarter is estimated at N0.21 same as in the 2020 first quarter.
- Total Comprehensive Income per unit is also estimated at N0.03, versus N0.07 in corresponding quarter of 2020.
- Our adjusted PE/Ratio for first quarter stood at 5.75x as against 8.17x in the corresponding quarter.
- The said earnings per share is same as 4.35% of the current market price of Union Bank Plc shares on the floor of the exchange when the result was released.
- The current Book Value of Union Bank is N9.11, a 4.23% improvement over the N8.74 estimated in the comparable quarter of last year.
- Confirming the stock’s seemingly under-priced position is the Price to Book Value ratio that stood clearly below unity.

**Valuation**

To achieve our fair valuation for Union Bank, we worked with the last few improved full-year earnings, but nevertheless, dividend growth remained static and has disadvantaged the upper valuation. Thus, we valued each unit of Union Bank shares at **N3.78**. Considering our value to the current market price on the floor of the exchange as at the time this report was compiled, we Rated it a **Hold**.