Company Analysis

United Capital 2021H1: Attractive Yield, Impressive Valuation


Rating
: BUY

Latest Dividend: N0.70
Current Market Price: N6.30
Year High: N6.57
Year Low: N4.50
Fair Value: N8.99
Equity AnalystTunde Segun Jeariogbe

Introduction

  • This report carefully observes the six months financials of United Capital while and compares same with figures for the similar period of 2020, and arrived at valuations making use of full-year statistics, projections and comparisons.
  • Our main objective is to further support investors’ decisions while positioning in the shares of United Capital Plc, following which we have adopted a conservative valuation approach in our analysis.
  • Generally, the six-month numbers released are impressive, as each financial index stood above that of a comparable period. It is noteworthy that the growth in expenses corresponds to growth in earnings.
  • See below for released numbers comparison/analysis and ratio estimations:
Sources: NGX, Company report, Investdata Research

Company figures

  • At the end of the six-month period, the management of United Capital reported a Total Revenue of 6.85 billion, the same as 54.13% above the N4.44 billion reported at the end of the corresponding quarter in 2020.
  • Net Operating Income was estimated at N6.81 billion, as against the N4.35 billion reported in the similar quarter of 2020.
  • Personnel Expenses stood at N709.57 million, which is 5.72% above the N671.21million used through the first nine months of 2020.
  • Other Operating Expenses amounted to N1.37billion, which is 49.23% above the N921.19 million reported in the comparable period.
  • Thus, Total Operating Expenses is estimated at N2.08 billion, higher than the N1.59 billion used through the 2020 half-year business session.
  • At the end of the period, the management achieved a Profit before Tax of N3.14 billion, the same as 64.95% above the N2.26 billion in the corresponding period.
  • Tax Expenses allowance for the period is the same as N598.44 million, versus N354.21 million in the comparable period.
  • In other words, Profit for the period stood at N3.14 billion as against the N1.91 billion in the corresponding quarter of 2020.
  • Boosted by the fair value gain on investments in equity instruments during the period, Total Comprehensive Income improved by 116.41% to stand at N3.32 billion, against N1.53 billion reported in the corresponding period.
Sources: NGX, Company report, Investdata Research
  • United Capital’s Total Assets is currently valued at N320.23 billion, a 44.74% improvement over the N219.72 billion stated in its 2020 half-year result.
  • Total Liabilities on the other hand stood at N296.68 billion against N201.60 billion in the corresponding quarter.
  • Cash & Cash Equivalents at the end of the quarter was N202.29 billion, far above the N103.07 billion in the first six months of 2020.
  • Net Assets is estimated at N23.55 billion, same as 29.96% above the N18.12 billion in the corresponding quarter.
  • Managed Funds within the period was N212.22 billion, versus N141.29 billion in the corresponding quarter.
  • Other Borrowed Funds with the company at the end of the quarter was valued at N74.89 billion, a 45.52%growth over the N51.46 in the comparable quarter.
  • Retained Earnings is the same as N20.54 billion versus N15.70 billion in a similar quarter.

Financial Strength/Solvency Ratios

  • United Capital’s Debt ratio is estimated at 92.64x at the end of the quarter. In other words, Total Liabilities for the period is as high as 92.64% of the Total Assets number. This is typical of financial services operators since good portion of the liabilities are Managed Funds
  • Total Debt to Equity is 12.60x against 11.12x in the corresponding quarter. That is, Debt at the end of the period can replicate Equity 12.60 times.
  • Equity Ratios stood at 7.36% as against the previously estimated 8.25%. in other words, Equity Valuation at the end of the period is 0.07x of the Total Assets valuation
  • Going by the estimated beta value of United Capital, one can easily conclude that the very liquid and well patronized on the Exchange as it currently stands above unity
Sources: NGX, Company report, Investdata Research

Profitability Ratios

  • Pre-Tax Margin stood at 54.57% up from the last estimate of50.99% at the end of 2020six months business session, this is an improvement in profitability rate between the two period compared
  • Effective Tax Rate was stable through the compared periods at 19.05%
  • Return of Equity stood at 13.34%, same as 26.35% growth when compared to the 10.56% in the corresponding period of 2020
  • Similarly, Return on Assets improved by12.67% to stand at 0.98% as against 0.87% in the corresponding quarter
  • See below table for detailed profitability ratios and comparison:
Sources: NGX, Company report, Investdata Research

Efficiency Ratios

  • Operating Expenses is estimated to be 30.41% of the Gross Earnings Value estimate for the quarter, this is an improvement of 15.08% in management efficiency when compared to the 35.81% estimated from 2020half year financial statistics.
  • Total Revenue through the period is the same as 2.41% of United Capital Total Assets Valuation, this is a 5.76% improvement in management efficiency during the observed period.
  • See below for other efficiency ratios:
Sources: NGX, Company report, Investdata Research

Investment/Valuation Ratios

  • At the end of the 2021 half-year period, the management of United Capital earned N0.52 on each per share, a 64.21% improvement over the N0.32 achieved at the end of the 2020 half-year business session.
  • Total Comprehensive Income per share equally improved by 114.41% from the corresponding period’s estimate. The ratio stood at N0.55 from N0.26 in the comparable period of last year.
  • Our half-year adjusted Price Earnings Ratio increased to 12.03x from 8.47x, note that the increase is mainly due to investors’ revaluation of the firm’s share price on the exchange during the periods.
  • The said earnings produced a yield of 8.31% over the price of United Capital on the floor of the exchange when the result was released. Although this is a drop from that of the corresponding period’s yield. We maintain that the yield is quite attractive since price changes within the period was much.
  • The Book Value of United Capital is estimated at N3.93 at the end of the quarter, this is an improvement on the N3.02 at the end of 2020half year business session
  • Confirming an academic over-valued status of United Capital shares on the floor of the exchange is the estimated Price to Book Value ratio that stood above unity
Sources: NGX, Company report, Investdata Research

Valuation

While valuing United Capital, we choose a highly conservative method, seeking to present a very secure price to our readers. Thus, we have valued each unit of United Capital shares for N8.99, this is clearly above both the Book Value and the current market price of United Capital on the floor of the exchange. Hence, we Rated United Capital a Buy.

Related Articles

Back to top button