United Capital H1: Impressive Numbers Signal Possibility Of Higher Dividend Payout

By Kanayo John

United Capital (UCAP) Plc on the 18th of July 2022 released its unaudited financial statements for the period-ended 30 June (6M-22) 2022 to the market. By this feat, it became the fourth quoted company to have made available its unaudited financials for the period ending 30 June 2022 to the Nigerian Exchange Group (NGX) ahead of the 30-day deadline after the due date.

Top and bottom-lines rises by 32.9%y/y and 41.2%y/y apiece

A quick analysis of the results showed that both Gross Earnings (GE) and Profit After Tax (PAT) expanded by 32.9% and 41.2% to settle at ₦9.11 billion and ₦4.44 billion respectively, compared to the numbers achieved in 6M-2021. The growth in revenue was bolstered by improved returns in the following line items – investment income, and fees & commission income – which grew by 9.2% and 23.9% to settle at ₦3.00bn (43.8% of GE), and ₦3.86bn (42.4% of GE) respectively. This feat is highly commendable and continued to show management dexterity in navigating through the murky business environment laced with structural challenges and variability of yields.

Note that the growth recorded by the investment income head was significantly bolstered by upsurge in yields’ environment in later part of Q2-2022, following the CBN’s Monetary Policy Committee (MPC) decision to hike Monetary Policy Rate (MPR) by 150bps to 13.0%.

Sturdy GE helps subdue the effect of cost line items

Operating expenses (OPEX) comprising of personnel expenses and other operating expenses rose by 39.3% to ₦2.90bn as pressure heightened from office running expenses (+138.16% y/y), professional fees (113.9% y/y), and AGM/Dividend processing cost (+110.9% y/y). Note that the office running cost must have included diesel expenses which has been profiled to carry over 35.0% of companies’ operating cost, following over 100% spike in its pump price per liter this year. However, Cost-to-income ratio compressed by 0.85% points y/y, largely helped by the improved growth recorded by GE (+32.9%). Notably, impairment provision rose modestly by 14.2% to ₦1.01bn due to allowances provided on loss on financial assets at amortised cost. We think the above is expected given the repricing of loans arising from the increased benchmark interest rate.

Bottom-line hits 64.2% y/y

Owing to the upside in revenue growth rate, pre-tax profit rose by 40.2% to settle ₦5.24bn. Notwithstanding the increase in tax liability (inclusive of income, education, and information tech taxes), up by 35.0% y/y, profit after tax (PAT) rose by 41.2% to settled at ₦4.44bn. At this income level, earnings per share (EPS) of 74kobo was achieved, 42.3% higher than 52kobo achieved in 6M-2021.

Total asset continues the upward growth

Total assets grew by 17.2% to settle at ₦531.79bn compared to figure reported in 12M-2021. Growth here was chiefly supported by a 318.5% increase in cash and cash equivalent. Total liabilities also rose by 19.4% to ₦505.27bn. This increase was substantially bolstered by 20.4% rise in managed funds (short term investments, trust funds and sinking funds). With the faster increased in total liabilities compared to total assets, Shareholders’ fund dropped modestly by 13.2% to ₦26.53bn when compared to 12M-2021. However, when compared to 6M-2021, total equity (shareholders’ fund) grew by 12.7%. With the above performance, return-on-equity (ROE) expanded to 16.7%, while return-on-asset (ROA) also expanded to 0.83% in 6M-2022.

We have a BUY recommendation on UCAP

We have an existing price target of ₦15.00 per share on UCAP. That gives an upside potential of 18.58% relative to market price of ₦12.65 as at close of market on Friday, 15 July 2022. We therefore uphold our BUY rating on the shares of UCAP.

 About United Capital Plc

United Capital Securities Limited is a dealing member of the Nigerian Exchange Group (NGX) and registered by the Securities and Exchange Commission (SEC) as a Broker/Dealer. It is also a registered dealing member of NASD OTC Plc and FMDQ OTC Plc. This enables the Company to deal in over-the-counter Equity and Fixed Income Securities. The Company provides services such as securities dealing, receiving agents to new issues, stockbrokers to primary issues, designated adviser to SME’s and equity portfolio management services.

  • Kanayo is of Imperial Assets Limited