Union Bank Plc: Time To Rethink Competition, Boost Returns

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


  • This report observed the nine-month financial numbers for the period ended 30th 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.
BourseNigerian Stock Exchange
Code NameUBN
Market ClassificationMain Board
Nature of BusinessCommercial Banking
Date of IncorporationMay 30th 1969
Date ListedJuly 20th 1990
End of Accounting Year31st December
AuditorKPMG Professional Services
Share Price@Relsd (N)                                                         5.90
Earnings per Share                                                         0.52
Intrinsic Value(N)                                                         5.00
Share Outstanding29,120,752,788
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.
Statement of Comprehensive Income
GROSS EARNINGS               121,384,000,000           117,153,000,0003.61
INTEREST INCOME                 85,611,000,000              85,173,000,0000.51
INTEREST EXPENSES                 43,507,000,000              48,244,000,0009.82
NET INTEREST INCOME                 42,104,000,000              36,929,000,00014.01
OPEX                 48,782,000,000              48,072,000,0001.48
DEPRECIATION                    4,801,000,000                5,327,000,0009.87
AMORTISATION                                           –                                          –  #DIV/0!
PBT                 15,435,000,000              15,644,000,0001.34
TAX                       366,000,000                    452,000,00019.03
PAT                 15,069,000,000              15,192,000,0000.81
TOTAL COMP INCOME                 17,115,000,000              17,249,000,0000.78
Statement of Financial Position
Total Assets           2,235,198,000,000        1,800,619,000,00024.13
Total Liabilities           1,862,043,000,000        1,558,626,000,00019.47
Net Assets               262,451,000,000           241,993,000,0008.45
Property Plan & Equipment                 62,144,000,000              59,344,000,0004.72
Retained Earnings                 27,159,000,000           (33,995,000,000)179.89
Total Deposits           1,139,484,000,000        1,009,842,000,00012.84
Total Loans and Advances               627,374,000,000           528,870,000,00018.63
  • 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
Debt Ratio83.31%86.56%3.76
Total Debt to Equity Ratio (MRQ)                                       7.09                                   6.4410.15
Equity Ratio11.74%13.44%12.63
Beta Value                                       0.50                                   1.1154.95

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
PRE-TAX MARGIN12.72%13.35%4.78
EFFECTIVE TAX RATE2.37%2.89%17.93
IE TO GE35.84%41.18%12.96

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.
OPEX TO GE40.19%41.03%2.06
GE TO TA5.43%6.51%16.53

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.
Investment/Valuation Ratios
Earnings Yield8.77%7.40%18.52


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.

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