Rating: BUY

Latest Dividend: N0.50
Current Market Price: N2.70
Year High: N3.80
Year Low: N1.90
Fair Value: N6.12
Equity Analyst:  Tunde Segun Jeariogbe

Introduction

• In this report, the half-year financial numbers of United Capital is observed and compared to numbers released in a similar period in19. We arrived at our valuations making use of full-year statistics, while projections and comparisons were done accordingly.
• Our main objective of looking into this report is to further support investors’ decisions should they contemplate positioning in the shares of United Capital Plc. We have therefore adopted a conservative valuation approach in our analysis
• Generally, the half-year numbers released are impressive as each financial indices stood above that of the comparable period, while expenses were adjusted accordingly.
• See below for released numbers’ comparison/analysis and ratio estimations.

Company Figures

• At the end of the half-year period, the management of United Capital reported Gross Earnings of N4.44 billion, same as 37.26% above the N3.23 billion reported at the end of the corresponding quarter in 2019.
• Net Operating Income is estimated at N4.10 billion, as against the N2.82 billion reported in the similar quarter of last year.
• Personnel Expenses stood at N671.21 million, a mild appreciation (7.86%) above the N622.30 million used through the first six months of 2019.
• Other Operating Expenses was valued at N921.19 million, which is 22.78% above the N750.25 million reported in the comparable period.
• Thus, Total Operating Expenses is estimated at N1.59 billion higher than the N1.37 billion used through the 2019 half-year business session.
• At the end of the period, the management achieved a Profit before Tax of N2.26 billion, the same as 14.10% above the N1.98 billion in the corresponding period.
• Tax Expenses allowance for the period is the same as N354.21 million, versus N337.71 million in the comparable period of the prior year.
• In other words, Profit for the period stood at N1.91 billion, as against the N1.64 billion in the corresponding quarter of 2019.
• Total Comprehensive Income for the quarter is estimated at N1.53 billion from N3.47 billion in the corresponding quarter.

• United Capital’s Total Assets is currently valued at N219.72 billion, a 55.50% growth over the N141.30 billion valued at the end of similar quarter in 2019.
• Total Liabilities, on the other hand, stood at N201.60 billion against N124.96 billion in the corresponding quarter.
• Cash & Cash Equivalents, at the end of the quarter, at N103.07 billion, was far above the N27.40 billion in 2019 half year.
• Properties Plant and Equipment investments through the six months stood at N322.67 million against N258.00 in 2019.
• Net Assets is estimated at N18.12 billion, same as 10.96% above the N16.33 billion in the corresponding quarter.
• Managed Funds at the end of the quarter was valued at N141.29 billion, versus N64.79 billion in the corresponding quarter.
• Other Borrowed Funds with the company at the end of the quarter was N51.46 billion, a marginal improvement over the N50.74 in the comparable quarter.
• Retained Earnings is same as N15.70 billion versus N13.96 billion in the similar quarter.

Financial Strength/Solvency Ratios

• United Capital’s Debt Ratio is estimated at 92x at the end of the quarter. In other words, Total Liabilities for the period was as high as 91.75% of the Total Assets. This is typical of financial services operators, since a good portion of the liabilities are Managed Funds
• Total Debt to Equity is 11.12x against 7.65x in the corresponding quarter. That is, Debt at the end of the period can replicate Equity in 11.12 times.
• Equity Ratios stood at 0.08x as against the previously estimated 0.12x. In other words Equity Valuation at the end of the period is 8.25% of the Total Assets valuation.
• Going by the estimated beta value of UCap, one can safely conclude that the stock is not as liquid as its’ market Beta.

Profitability Ratios

• Pre-Tax Margin stood at 50.99% down from the last estimate of 61.35% at the end of 2019 business session, this is a drop in profitability rate between the two periods observed.
• Effective Tax Rate was stable through the compared periods, moving from 20.47% to 18.51%.
• Return on Equity stood at 10.56%, the same as 4.52% marginal improvement when compared to 10.10% in the corresponding period of 2019.
• Return on Assets equally dropped to 0.87%, as against 1.17% in the corresponding quarter.
• See the table below for detailed profitability ratios and comparison.

Efficiency Ratios

• Operating Expenses is estimated at 35.81% of the Gross Earnings Value estimate for the quarter, an improvement over the 15.48% in efficiency when compared to the 43.37% estimated for the 2019 half- year financial statistics.
• Total Revenue through the period is same as 2.02% of United Capital’s Total Assets Valuation. This is 11.73% dropped in management efficiency during the observed period.
• See below for other efficiency ratios.

Investment/Valuation Ratios

• At the end of the 2020 half-year business session, the management of United Capital earned N0.32 on each units of its listed share capital, the is 15.98% improvement over the N0.27 half year earnings recorded in 2019 half year.
• Total Comprehensive Income on the other hand dipped from the corresponding period’s estimate. The earnings stood at N0.26 from N0.58.
• The Price Earnings Ratio increased to 8.47x from 7.86x
• The said earnings produced an outstanding yield of 11.81% over the price of United Capital on the exchange when the result was released. Although this is a drop from the corresponding period’s yield, we maintain that the yield is attractive.
• The Book Value of United Capital was estimated at N3.02 at the end of the quarter, this is an improvement in valuation when compared to N2.72 valued in 2019 half-year.
• Confirming the undervalued status of United Capital shares on the floor of the exchange is the estimated Price to Book Value ratio at below unity.

Valuation

While valuing United Capital, we chose a highly conservative method, seeking to present a very secure price to our readers. Thus, we have valued each unit of United Capital shares at N6.12, which is clearly above both the Book Value and the current market price of United Capital on the exchange. Hence, we Rated United Capital a Buy.