UBA 2020H1: LDR Shortfall Offers Better Head Room For Assets Creation, Growth

Rating: Buy
Current Market Price: N6.2

Loan to Deposit Ratio: 42.19%
Year High: N9.25
Year Low: N4.40
Fair Value: N12.35
Equity AnalystTunde Segun Jeariogbe

Key Investment Ratios

  • This report observed the 2020 half-year financial performance indices of United Bank for Africa (UBA) as recently released by the management, compared it to numbers for the corresponding period of 2019 to establish the growth trajectory, and to make projections and recommendations accordingly.
  • It is noteworthy that at the end of the 2020 half-year operations, the management announced a 17 kobo interim cash dividend, as against 20 kobo in the same period of last year.
  • The dividend proposed is same as 13.09% pay-out from the N1.30 earned per share through the first two quarters of the year, representing a 2.60% yield over the current market price of UBA Plc shares as of the time the result was released through the Nigerian Stock Exchange (NSE).
  • Closure date for the dividend is 16thSeptember, 2020, while the qualification and payment dates are 15th and 23rdSeptember, 2020 respectively.
  • We note also that the bank did not meet the 65% regulatory limit set for Loan-to-Deposit Ratio (LDR), as it only dispensed 42.19% of its total deposit base as loans.
BourseNigerian Stock Exchange
Code NameUBA
Market ClassificationPremium Board
Nature of BusinessCommercial Banking
Date of IncorporationFebruary 23rd 1961
Date ListedMarch 31st 1970
End of Accounting Year31st December
Share Price@Relsd (N)                                                         6.55
Earnings per Share                                                         1.30
Intrinsic Value(N)                                                       12.35
Share Outstanding34,199,421,368
Market Capitalisation                                     224,006,209,960

Company figures

  • Gross Earnings through the half-year is valued at N300.25 billion, same as 2.24% above the N293.69 billion posted in its 2019half year earnings.
  • Of this amount, interest Income improved by a marginal 0.34% to N205.58 billion, compared to the N204.88 billion reported in the corresponding period.
  • Interest Expenses is currently valued at N86.26 billion, which is below the N94.76 billion posted at the end of the 2019 second quarter.
  • Operating Expenses is estimated at N122.53 billion, higher than N100.77 billion used through the 2019 half-year operating period.
  • Profit before Tax is estimated at N57.12 billion, versus N70.24 billion in the comparable quarter of 2019.
  • Having taken care of the Tax Expense, the management of UBA Plc reported N44.43 billion as profit for the quarter, which is 21.69% lower than the N56.73 billion earned in 2019.
  • Enhanced by changes on investments on debt securities, the Total Comprehensive Income for the quarter stood at marginal point over comparable period at the stated N64.11 billion, versus N62.08 billion.
Statement of Comprehensive Income
GROSS EARNINGS               300,257           293,6902.24
INTEREST INCOME               205,586           204,8850.34
INTEREST EXPENSES                 86,262              94,7628.97
NET INTEREST INCOME               119,324           110,1238.36
OPEX               122,536           100,77521.59
DEPRECIATION                   9,590                8,8128.83
PBT                 57,129              70,27418.71
TAX                 12,698              13,5356.18
PAT                 44,431              56,73921.69
TOTAL COMP INCOME                 64,115              62,0803.28
Statement of Financial Position
Total Assets           6,775,365        5,102,12332.80
Total Liabilities           6,140,632        4,559,66534.67
Net Assets               634,733           542,45817.01
Property Plan & Equipment               144,963           118,57122.26
Retained Earnings               209,352           195,0657.32
Total Deposits           5,340,918        3,681,42845.08
Total Loans and Advances           2,253,559        1,768,76327.41
  • At the end of the period under review, the bank’s Total Assets is valued at N6.77 trillion, same as 32.80% above the N5.10 trillion stated in its 2019 half-year.
  • Total Liabilities equally stood above comparable year by 34.67% to N6.14 trillion, versus N4.55 trillion in 2019.
  • Net Assets is valued at N634.73 billion as against N542.45 billion at the end of the corresponding quarter of last year.
  • Total Deposit received through the 2020 half-year is estimated at N5.34 trillion, this is 45.08% better than the N3.68 trillion in 2019.
  • Total Loans and Advances is N2.25 trillion, 27.41% higher than the N1.76 trillion posted in 2019.
  • See the above table for details.

Financial Strength/Solvency Ratios

  • Debt Ratio which compared Total Assets to Total Liabilities stood at 90.63% implying as against 89.37% in the corresponding quarter. Please understand that the high debt ratio is typical of financial institutions.
  • Total Debt to Equity for the year stood at 967.44%, as against 840.56% in the corresponding quarter of last year. In other words debt used through the period can replicate equity 9.67 times. As noted above, this is because of the deposit accepting nature of banks.
  • Equity Ratio which compares Equity to Total Assets stood at 9.37%, as against 10.63% in the corresponding quarter.
  • Estimated Beta value for UBA as at the time this report was compiled stood at 1.10x, higher than the market beta, although below the industry average as at the time this report was compiled.
Financial Strength/Solvency Ratio
Debt Ratio90.63%89.37%1.41
Total Debt to Equity Ratio (MRQ)967.44%840.56%15.09
Equity Ratio9.37%10.63%11.89
TICKERSUBAIndustrial Average%CHG
Beta Value                                       1.10                                   1.154.35
Non Performing Loan Ratio6.80%6.53%4.13

Profitability Ratios

  • Pre-Tax Margin dropped by 20.48% to 19.03%, as against the 23.93% estimated at the end of 2019 half-year.
  • Interest Expenses to Gross Earnings dropped by 10.96% to 28.73%, as against the previously estimated 32.27% in the corresponding quarter.
  • Return on Average Equity through the quarter was 7.00%, as against 10.46% in 2019.
  • See the table below for detailed profitability ratios and comparison.
PRE-TAX MARGIN19.03%23.93%20.48
EFFECTIVE TAX RATE22.23%19.26%15.40
IE TO GE28.73%32.27%10.96

Efficiency Ratios

  • Operating Expenses for the period is estimated at 40.81% of the Gross Earnings, which is 18.93% above the 34.31% in the corresponding period of last year.
  • Gross Earnings is same as 4.43% of the Total Assets valuation at the end of the quarter, this is 23.01% below the 5.76% estimated in 2019.
  • As stated earlier, 42.19% of the total deposits for the period was given out as loans, which is 12.18% below the 48.05% of deposit as loan and advances through the similar period of 2019, and lower than the regulatory standard of 65%. This is an indication that the group still has enormous head room for expansion of its loan book.
OPEX TO GE40.81%34.31%18.93
GE TO TA4.43%5.76%23.01
Capex/Share                                       1.05                                   0.5495.41

Investment/Valuation Ratios

  • The N1.30 earned per unit of UBA Plc was lower than the N1.66 earned per share in the prior half-year.
  • Our half -year adjusted Price/Earnings Ratio stood at 1.26x, as against 0.88x in the corresponding quarter of 2019.
  • The above mentioned earnings per share is same as 19.83% yield of the price of UBA on the floor of the NSE when the result was released to the investing public, which is a lower yield when compared to 28.36% reported in 2019.
  • Estimated Book Value per shares of UBA Plc is currently N18.56, same as 17.01% above the N15.86 estimated at the end of 2019 half year.
  • Thus, Price to Book Value stood at 0.35x, down from 0.37x, which simply implies that the stock is currently selling below book value on the exchange.
Investment/Valuation Ratios
Earnings Yield19.83%28.36%30.06


While trying to place a fair value on each unit of UBA Plc shares, we considered the average of two valuation models. FCFE Stable GrowthModel valued the stock at N12.35; while H-Model placed the price at N11.40. We therefore arrived at an average value of N12.35 for each unit. We, therefore, Rated UBA shares a BUY.