Rating: Hold

Current Market Price: N5.70

LOAN to DEPOSIT Ratio: 55.06 %
Year High: N7.60
Year Low: N4.65
Fair Value: N5.00
Equity Analyst:  Tunde Segun Jeariogbe

Introduction

• This report observed the nine-month financial numbers for the period ended 30^th September, 2020, and compared the result to those for the similar quarter of 2019 to establish growth, make projections and a valuation.
• The bank maintained positive retained earnings and is achieving a level ground in profit line. However, for an upward valuation and reliability, there is need for the management to establish a consistent dividend policy.
• Although the result is marginal on both sides, the bank’s effort at growing its profit close to its comparable period is commendable, despite the various phases of economic chaos within which it operated during the nine months under analysis.
• The improvement in total comprehensive income was boosted by Foreign currency translation differences for foreign operations.

UNION BANK
Bourse	Nigerian Stock Exchange
Code Name	UBN
Sector	FINANCIAL SERVICES
Market Classification	Main Board
Nature of Business	Commercial Banking
Date of Incorporation	May 30th 1969
Date Listed	July 20th 1990
End of Accounting Year	31st December
Website	www.unionbankng.com
Registrar	GTL-Regisrar
Auditor	KPMG Professional Services
Share Price@Relsd (N)	5.90
Earnings per Share	0.52
Intrinsic Value(N)	5.00
Share Outstanding	29,120,752,788
Market Capitalisation	171,812,441,449

Company figures

• Estimated Gross Earnings for the year stood at N121.38 billion, same as a marginal 3.61% above the N117.15 billion reported in the corresponding quarter of last year.
• Interest Income grew by 0.51% to stand at N85.61 billion, as against the N85.17 billion in the 2019 third quarter.
• Interest Expenses is valued at N43.50 billion, a 9.82% drop from the N48.24 billion stated in prior 9 months.
• Net Interest Income improved by 14.01% to N42.01 billion versus N36.92 billion.
• Operating Expenses was curtailed effectively, as can be seen in the marginal 1.48% rise to N48.72 billion, from N48.02 billion in similar quarter.
• Profit before Tax is valued at N15.43 billion, which is 1.34% below the N15.64 billion achieved at the end of 2019 third quarter.
• Having accounted for tax expenses in the period, the management achieved N15.06 billion as Profit for the period. The said profit is 0.81% below the corresponding quarter profit.
• As noted above, Foreign currency translation differences for foreign operations enhanced the profit line, following which Total Comprehensive Income for the period stood at N17.11 billion.

UNION BANK
Statement of Comprehensive Income
	2020	2019	%CHG
GROSS EARNINGS	121,384,000,000	117,153,000,000	3.61
INTEREST INCOME	85,611,000,000	85,173,000,000	0.51
INTEREST EXPENSES	43,507,000,000	48,244,000,000	9.82
NET INTEREST INCOME	42,104,000,000	36,929,000,000	14.01
OPEX	48,782,000,000	48,072,000,000	1.48
DEPRECIATION	4,801,000,000	5,327,000,000	9.87
AMORTISATION	–	–	#DIV/0!
PBT	15,435,000,000	15,644,000,000	1.34
TAX	366,000,000	452,000,000	19.03
PAT	15,069,000,000	15,192,000,000	0.81
TOTAL COMP INCOME	17,115,000,000	17,249,000,000	0.78
Statement of Financial Position
Total Assets	2,235,198,000,000	1,800,619,000,000	24.13
Total Liabilities	1,862,043,000,000	1,558,626,000,000	19.47
Net Assets	262,451,000,000	241,993,000,000	8.45
Property Plan & Equipment	62,144,000,000	59,344,000,000	4.72
Retained Earnings	27,159,000,000	(33,995,000,000)	179.89
Total Deposits	1,139,484,000,000	1,009,842,000,000	12.84
Total Loans and Advances	627,374,000,000	528,870,000,000	18.63

• Total Assets valuation for the period stood at N2.35 trillion, which is 24.13% higher than the estimate at the end of 2019 third quarter.
• Total Liabilities, on the other hand, grew by 19.47% to N1.86 trillion, versus N1.55 trillion in similar quarter.
• Net Assets appreciated above the comparable quarter’s estimate by a marginal 8.45% to N262.45 billion, as against N241.99 billion in 2019.
• Retained Earnings maintained positive region to N27.15 billion, as against the negative reserve reported at the end of the 2019 third quarter.
• Total Customers Deposits at the end of the quarter improved by 12.84% to N1.13 trillion, versus N1.00 trillion in 2019.
• Total Loan and Advances on the other hand improved by 18.63% to N627.37 billion, as against N528.87 billion.

Financial Strength/Solvency Ratios

• We have estimated the Debt Ratio at 83.31%, a marginal drop from the previous quarter’s estimates. In other words, Total Liabilities estimate for the period is same as 83.31% of Total Assets valuation. It is important to 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 7.09 times, better than the 6.44 times of 2019 third quarter.
• Total Equity was estimated at 11.74% of the Asset Value at the end of the period, this is below the 13.44% estimated in the corresponding quarter
• We have estimated a Beta value below the market Beta for Union Bank Plc shares. Note that at 0.50 beta value, it is below the industrial average of 1.11.

Financial Strength/Solvency Ratio
TICKERS	2020	2019	%CHG
Debt Ratio	83.31%	86.56%	3.76
Total Debt to Equity Ratio (MRQ)	7.09	6.44	10.15
Equity Ratio	11.74%	13.44%	12.63
Beta Value	0.50	1.11	54.95

Profitability Ratios

• Pre-Tax Margin stood at 12.72%, down from the corresponding quarter’s estimate of 13.35% at the end of 2019 third quarter.
• Interest Expense report during the quarter is same as 35.84% of the Estimated Gross Earnings figure, an improvement in profit over the previously estimated 41.18%.
• Returns Achieved on Average Equity used through the period was estimated at 5.74%, below the 6.28% in the comparable period.
• See below table for detailed profitability ratios and comparison

PROFITABILITY RATIOS
TICKERS	2020	2019	%CHG
PRE-TAX MARGIN	12.72%	13.35%	4.78
EFFECTIVE TAX RATE	2.37%	2.89%	17.93
IE TO GE	35.84%	41.18%	12.96
ROAE	5.74%	6.28%	8.54
ROAA	0.67%	0.84%	20.09

Efficiency Ratios

• Operating Expenses is estimated at 40.19% of the Gross Earnings Value estimate for the quarter, a marginal improvement in efficiency when compared to the 41.03% estimated from 2019 nine months financials.
• Similarly, Gross Earnings was estimated at 5.43% of Total Assets, a 16.53% drop in efficiency when compared to estimate from the corresponding quarter.
• Total Loan to Deposit Ratio achieved at the end of the quarter stood at 55.06%, up from the 52.37% achieved in similar quarter of 2019. Note that this is still below the 65% regulatory threshold set by the CBN.

EFFICIENCY RATIOS
TICKERS	2020	2019
OPEX TO GE	40.19%	41.03%	2.06
GE TO TA	5.43%	6.51%	16.53
LDR	55.06%	52.37%	5.13

Investment/Valuation Ratios

• Profit made on each unit of Union Bank’s shares at the end of the 2020 third-quarter is estimated at N0.52, almost same as in the corresponding period of last year.
• Total Comprehensive Income per unit is also estimated at N0.59 each.
• Our adjusted PE/Ratio for nine months is 3.80x, lower than the previously estimated 4.50x in the comparable quarter.
• The said earnings per share is same as 8.77% of the current market price of Union Bank Plc shares on the exchange when the result was released, meaning that earnings per share is a yield of 8.77% of the market price.
• The current Book Value of Union Bank is N9.01, an 8.45% improvement over the N8.31 estimated last quarter.
• Confirming the seemingly under-priced position is the Price to Book Value ratio that stood clearly below unity.

UNION BANK
Investment/Valuation Ratios
Tickers	2020	2019	%Chg
EPS	0.52	0.52	0.81
TCIP/SHARE	0.59	0.59	0.78
P/E-Ratio	3.80	4.50	15.63
Earnings Yield	8.77%	7.40%	18.52
BV/Share	9.01	8.31	8.45
PBV	0.65	0.85	22.84

Valuation

Though Union Bank had paid investors its first dividend after long years of drought, having managed to build its indices appropriately, we maintain our conservative valuation approach. Thus, we have valued each unit at N5.00. Meanwhile, considering the growing part of the financial institution, and the closeness of its share price on the floor of the exchange to our fair value, we Rated it a Hold.