Rating: HOLD
Latest Dividend: N0.70
Current Market Price: N9.85
Year High: N9.90
Year Low: N4.50
Fair Value: N9.99
Equity Analyst: Tunde Segun Jeariogbe
Introduction
- This report observes the nine monthly financial numbers for the period ended September 2021 of United Capital Plc, compares same to those of the similar numbers released in 2020 to helps us arrive at our valuations, making use of full-year statistics, projections and comparisons were accordingly.
- Our main objective in this report is to help investors arrive at a decision on whether or not to position in the shares of UCap. We have therefore adopted a conservative valuation approach in our analysis.
- Generally, the nine-month numbers released are impressive as each financial index stood above that of the comparable period of last year, although Total Operating Expenses witnessed a growth.
- See below for the released numbers/analysis and ratio estimations.
Company figures
- At the end of the nine months, the management of United Capital reported a Total Revenue of 11.32 billion, the same as 60.26% above the N7.06 billion recorded at the end of the similar period of 2020.
- Net Operating Income was estimated at N11.07 billion, against the N6.76 billion reported in the same quarter of 2020.
- Personnel Expenses stood at N1.30 billion, 10.13% above the N1.86 billion used through the first nine months of last year.
- Other Operating Expenses stood at N2.13 billion, up by 61.13% from the N1.32 billion reported in the comparable period of 2020.
- Thus, Total Operating Expenses are estimated at N3.44 billion, higher than the N2.51 billion used through the 2020 third quarter.
- At the end of the period, the management achieved a Profit before Tax of N7.09 billion, the same as 72.00% above the N4.12 billion in the corresponding period of last year.
- Tax Expenses allowance for the period was N1.12 billion, versus N659.73 million in the preceding nine months.
- Following which Net Profit for the period stood at N5.96 billion, as against N3.46 billion in the corresponding period of 2020.
- Total Comprehensive Income for the period is estimated at N6.66 billion, the same as 90.75% above the N3.49 billion reported in the similar period of last year.
- United Capital’s Total Assets is currently valued at N400.74 billion, a 89.46% above the N211.52 billion at the end of a similar quarter in 2020.
- Total Liabilities on the other hand stood at N373.85 billion, against N191.44 billion in the corresponding period of last year.
- Cash & Cash Equivalents at the end of the quarter was N86.14 billion, lower than the N115.43 billion reported in the 2020 nine months.
- Net Assets is estimated at N26.88 billion, the same as 33.92% above the N20.07 billion in the corresponding quarter.
- Managed Funds at the end of the quarter was valued at N289.77 billion, versus N125.74 billion in the corresponding quarter.
- Other Borrowed Funds with the company at the end of the quarter was N73.59 billion, a 26.16% growth over the N17.25 in the comparable quarter.
- Retained Earnings is same as N23.36 billion versus N17.25 billion in the similar quarter
Financial Strength/Solvency Ratios
- United Capital’s Total Liabilities for the period are estimated at 93.29% versus 90.51% at the end of the corresponding quarter. This is typical of financial services operators since a good portion of the liabilities are Managed Funds
- Total Debt to Equity translated to 13.90x, against 9.54x in the corresponding quarter, an indication that Debt at the end of the period can replicate Equity 13.90 times. In other words, more debt was used in servicing the company’s assets.
- Equity Ratios stood at 6.71%, against the previously estimated 9.49%. in other words, Equity Valuation at the end of the period is 6.71% of the Total Assets valuation
- Going by the estimated beta value of UCap, one can safely conclude that the stock is less liquid, at below the market beta.
Profitability Ratios
- Pre-Tax Margin stood at 97.78%, up from the last estimate of 95.63% at the end of the 2020 nine-month period, an improvement in profitability between the two periods observed.
- Effective Tax Rate was stable through the compared periods.
- Return on Equity stood at 22.18%, same as 28.60% growth when compared to 17.25% in the corresponding period of 2020.
- Return on Assets, on the other hand, dropped to 1.49% as against 1.64% in the corresponding quarter. The drop can be linked to the outstanding growth recorded in the Assets Valuation between the compared periods
- See the table below for the detailed profitability ratios and comparisons.
Efficiency Ratios
- Operating Expenses is estimated at 30.39% of the Gross Earnings estimate for the quarter, this is a marginal improvement over the 14.49% efficiency when compared to the 35.54% estimated from the 2020 third-quarter financials.
- Total Revenue through the period is the same as 2.83% of United Capital’s Total Assets Valuation, a 15.41% drop in management efficiency during the observed period
- See below for other efficiency ratios.
Investment/Valuation Ratios
- At the end of the 2021 third quarter, the management of United Capital earned N0.99 on each unit of its listed share capital, which is a 72.23% improvement over the N0.58 earned in the first nine months of 2020.
- Total Comprehensive Income per share grew by 90.75%, against the corresponding period’s estimate. The ratio stood at N1.1 compared to N0.58 each.
- The Price Earnings Ratio adjusted down to 9.91x from 6.15x
- The said earnings produced an outstanding yield of 10.09% over the price of United Capital on the exchange when the result was released. Although this is a drop against the corresponding period’s yield, we believe that the yield is quite attractive.
- The Book Value of United Capital is currently estimated at N4.48 at the end of the quarter, an improvement in valuation when compared to the N3.35 valued at the end of 2020 nine-month.
- 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.
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 N9.99, this is clearly above both the Book Value but slightly below the current market price of United Capital on the exchange as at the time this report was completed. Hence, we Rated United Capital a Hold.
