Company Analysis

UBA Plc 2019H1: Impressive Investment, Efficiency Ratios, Trading At Huge Discount

On Friday, August 30, 2019, United Bank for Africa Plc presented its audited results for the half-year ended June 30, 2019, in line with its post-listing requirement, just one day after that of 2018.
The high asset quality and risk management framework were evident in the decline in loan loss provision and increasing earnings power, which was driven by income from investment, foreign exchange. This was in addition to fee income from electronic and internet banking within the period under consideration.
The group sustained growth and profit across all its operational bases, an assurance of value creation and delivery to all stakeholders.
In real terms, the bank’s result is impressive when compared to that of the corresponding period, with gross earnings at N293.7bn, up by 14% from N257.9bn in 2018, while profit climbed 29.45% up to N56.7bn, as against N43.8bn in the previous year.
The reduction in an Impairment charge on financial assets for the period to N3.12bn, from N6.73bn in 2018, fees income N52.34bn, compared to N45.85bn in 2018; while trading/foreign exchange revenue of N32.75bn from N20.46bn in 2018;
Should this up-trend be sustained in the subsequent quarters of the year, it would support the share price rebound and raise hope for higher dividend payout despite the market trend driven low price.
The bank’s Dividend Yield remained the best among others that recently declared an interim dividend, for a company whose shares are currently trading at N5.85 each, which translates to over 170% below Book Value of N15.86 per share, which revealed the undervalued state of UBA’s share, as well as its upside potential.
The bank’s Price to Earnings ratio is 0.88x, while investors’ waiting period has dropped significantly from 1.57x as a result of growth in its earnings power and general down market condition.
Notwithstanding, the weak economy and risk exposure, with all sectors of the system struggling due to the harsh economic environment in which companies operate, the Non-Performing Loan ratio dropped to 5.62% from 6.45% position as at the full year 2018.
It is noteworthy that at 48.04%, as of half-year, UBA Plc is yet to meet the minimum 60% Loan to Deposit ratio prescribed by the Central Bank of Nigeria (CBN) beginning from the end of September 2019.
The bank’s dexterity in navigating its balance sheet towards areas of opportunities was also revealed within the review period, even as its Capital Adequacy Ratio climbed to 28%, from 23.6% in December 2018.

Despite the marginal growth in Net Interest Income as reported by the bank, its profitability, investment and efficiency ratios remained impressive, a reason for which investors should look the way of the bank’s stock for their different investment purposes. Profit before and after-tax margin climbed to 37.31%, and 19.32% respectively from 2018 position of 24.36% and 16.98%. Return on equity and asset stood at 10.46% and 1.11% respectively. As shown in the table above
Technical View

The bank’s price action has followed the general market direction, despite serious attempts at a rebound which failed as a result of prolonged bearish sentiment prevailing in the market and economy. The downtrend has been for almost two years as UBA’s stock continues, following which it made lower lows, despite the positive financials before recently forming a descending triangle.
This chart pattern indicates a continuation or reversal of the trend. The strong support level of the bank in its pullback movement is N5.00 per share. The likelihood of a breakout from the triangle is high considering the Q2 earnings and mixed sentiment.
Looking at the 3.42% yield and the low market value, traders and Investors should look the way of UBA for the breakout of the first resistance at N6.40 and the second resistant at N7.80 or reversal to first support level at N4.86 and second support price of N4.60. The momentum of the trend is weak at 29.36points despite its above 20 ADX.

Forecasts
The bank’s full-year 2019 gross earnings forecast is N538.29bn, representing a 14% improvement relative to FY 2018, while net income of N100.17bn is estimated for the period, which translates to a 27.44% improvement on the 2018FY. This yields an EPS of N3.18 and a forward P/E of 1.84X.
The prevailing low prices of stocks in the banking sector and the nature of UBA’s services ensure that the industry has remained attractive to domestic and foreign investors as volume traded remained relatively high for traders. We expect less loan loss provisions even as the bank works on complying with the CBN 60% Loan to Deposit Ratio, if the real sector experiences recovery in the last quarter of the year, due to the festive season. It is believed that the government will hit the ground running now that portfolios have been assigned to the Ministers.

Analysts Opinion/Recommendations
UBA’s shares are undervalued, considering the projection for 2019 financial year-end. The stock is currently trading at a 201% discount to our Fair Value estimate of N18.00.
We are still skeptical as a result of the unfriendly business environment in Nigeria, especially with the rate cut and insecurity across the entire northern Nigerian stretch, coupled with the delay in implementation 2019 budget.
We note the impressive and steady rise in the bank’s Book Value position over the last years and the short waiting period for as revealed by Price to Earnings ratio. However, the group’s management must be proactive with its Return on Equity (ROE) growth. We, therefore, retain our BUY recommendation on UBA share.

Robust Balance Sheet, Supporting Growth And Profitability
The bank’s ability to strengthen its retail and investment banking business segments will further enhance earnings, profit and enable the board to reward investors handsomely at the full year. The ongoing deposit drive and proactive balance sheet deployment will deliver positive results as expected, going into the future. The group’s management was very effective, with the cost of risk at 0.60%, ensuring that the backlash of some regulatory policy changes was moderated. The relative stability in local currency is an incentive for UBA Plc to sustain offshore earnings through its operating network and in the process support bottom-line growth.

Four-Year Performance (2015-2018)
The bank has been resilient as mentioned earlier, despite the tight economic conditions, especially since the crash in oil prices and the resultant pressure on disposable income. This may have been the major restraining factor against the creation of risk assets during the review period.
Gross earnings over the four-year period grew by 47.98% to N456.9bn from N314.83bn in 2015. The profitability level for this period was stable, despite different regulatory rules and huge provisions. The bottom line for the same period was up by 31.76% from N59.65bn in 2015 to N78.6bn as shown in the table below.
Efficiency for the period declined before the recent reversal, as shown by the Return on Equity (ROE) of 17.98%, 16.13%, 14.68% and 15.64% for 2015, 2016, 2017 and 2018 respectively. Profit margin (PM) experienced a downward swing during the same period to 16.87%, from 18.95% year-on-year remaining above the 15% international standard. Management also grew shareholders funds for the period by 51.11% to N502.6bn, from N332.62bn in 2015.

Robust Balance Sheet, Supporting Growth And Profitability
The bank’s ability to strengthen its retail and investment banking business segments will further enhance earnings, profit and enable the board to reward investors handsomely at the full year. The ongoing deposit drive and proactive balance sheet deployment will deliver positive results as expected, going into the future. The group’s management was very effective, with the cost of risk at 0.60%, ensuring that the backlash of some regulatory policy changes was moderated. The relative stability in local currency is an incentive for UBA Plc to sustain offshore earnings through its operating network and in the process support bottom-line growth.

Four-Year Performance (2015-2018)
The bank has been resilient as mentioned earlier, despite the tight economic conditions, especially since the crash in oil prices and the resultant pressure on disposable income. This may have been the major restraining factor against the creation of risk assets during the review period.
Gross earnings over the four-year period grew by 47.98% to N456.9bn from N314.83bn in 2015. The profitability level for this period was stable, despite different regulatory rules and huge provisions. The bottom line for the same period was up by 31.76% from N59.65bn in 2015 to N78.6bn as shown in the table below.
Efficiency for the period declined before the recent reversal, as shown by the Return on Equity (ROE) of 17.98%, 16.13%, 14.68% and 15.64% for 2015, 2016, 2017 and 2018 respectively. Profit margin (PM) experienced a downward swing during the same period to 16.87%, from 18.95% year-on-year remaining above the 15% international standard. Management also grew shareholders funds for the period by 51.11% to N502.6bn, from N332.62bn in 2015.

Ambrose Omordion
CRO|Investdata Consulting Ltd

info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467

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